Cornerstones of Cost Management Study Set 4

Business

Quiz 10 :
Decentralization

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Quiz 10 :
Decentralization

The sales, operating income and the operating assets of the small appliances division and cleaning products division of Forchen, Inc. is given in the question. 1. (a)For small appliances division: img img b. img img c. img img d. img img 2. (a)For the cleaning products division:- img img b. img img c. img img d. img img 2.The new operating income is lower; therefore, both margin and ROI would be lower. Average operating assets and turnover would be unaffected, since operating income is not a part of the equations for them. New margin is calculated as,   img New ROI is calculated as, img img Hence, the new return on investment (ROI) is img

Decentralization: • Decentralization is a form of delegation of authority, whereby lower level managers are authorized to take decisions and to practice the same. • Hence, we can say immediate and ultimate decisions pertaining to concerned department, are taken by lower level departmental head that is manager. Identify the difference between decentralized and centralized decision-making: • However, In case of centralized system, top-level managers make fundamental decisions and managing director and the duty of lower-level managers is only to act accordingly. • However, under decentralized form of organization decision making authority and responsibility retains with the lower managers.

The sales, operating income and the operating assets of the small appliances division and cleaning products division of Forchen, Inc. is given in the question number 1. Now it requires an 8% minimum rate of return. 1.Residual income for Small Appliances Division (SAD) img The retail income for SAD is img 2.Residual income for cleaning products division img The residual income for cleaning products division is img 3.If the minimum rate of return was 9%, the residual income of both divisions would be lower. Residual income for small appliances division is, img Residual income for cleaning products division is, img Hence, with the minimum rate of return of 9%, the residual income for small appliances is img and the residual income for cleaning products division is img

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