Cost management∶accounting and control 第十章解答手册.doc

CHAPTER 10 DECENTRALIZATION: RESPONSIBILITY ACCOUNTING, PERFORMANCE EVALUATION, AND TRANSFER PRICING QUESTIONS FOR WRITING AND DISCUSSION 1. Decentralization is the delegation of decision-making authority to lower levels. In centralized decision making, decisions are made at the very top level, and lower-level managers are responsible for implementing these decisions. For decentralized decision making, decisions are made and implemented by lower-level managers. 2. Reasons for decentralization include the following: access to local information, more timely response, focusing of central management, exposure of segments to market forces, enhanced competition, training, and motivation. 3. Knowledge of local conditions may be critical for decisions; local managers are aware of these conditions, whereas higher-level managers may not be. This can lead to more informative decision making. 4. Margin = Net income/Sales, and Turnover = Sales/Average operating assets. By breaking ROI into margin and turnover, more insight into why ROI may change from one period to the next is possible. 5. Three advantages of ROI include: (1) ROI encourages managers to pay attention to the relationships among sales, expenses, and investment. (2) ROI encourages cost efficiency. (3) ROI discourages excessive investment in operating assets. Increased profitability can be achieved (all other things being equal) by increasing revenues, decreasing expenses, or lowering investment. 6. Two disadvantages of ROI are: (1) ROI may discourage managers from investing in proj-ects that would increase the profitability of the firm but decrease the division’s ROI. (2) It also may encourage managers to focus on short-run profitability and to take actions that may harm long-run profitability. 7. Residual income is the difference between net income and the minimum dollar return required on an investment. Residual income encourages investment in all projects that earn at least the minimum rate of return. 8. EVA i