BUS-A 202 Lecture Notes - Lecture 12: Profit Margin, Life-Cycle Assessment, Keurig
Document Summary
Allows management to focus on overall corporate strategy. Tailors managers skills and specializations to job requirements. Might lead to an emphasis on local vs global goals. Leads to improper decisions because of divergence between individual and organizational goals. Engineered cost center- clear relation between resources consumed and output: ex: machining, assembly, packaging. Discretionary cost center- no clear relation between resources consumed and output: ex: hr, legal, accounting, advertising, general admission. Control cost, revenue, and long term investment decisions. Controllability principle: focus on costs and benefits from actions taken or not taken by decision makers, actions have consequences. The informativeness condition: benchmark with others (relative performance, focus on managers effort. Favors older divisions because of smaller asset base. + conceptually leads to better project selection for company. Size sensitive (larger divisions have larger ri) Depends on the cost of capital used. Shows if excessive funds are tied up in assets.
