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Decentralization

This document summarizes Decentralization Group Eight. The group members are Azzahra, GEA Puspa Dewi, and Prillia Dwina. It defines decentralization as delegating decision-making authority away from central authority. Decentralized organizations allow managers at various levels to make key operating decisions. Benefits include lower-level managers gaining experience, better information for decisions, and ability to respond quickly to customers. Disadvantages can include lack of coordination and objectives not aligning with the overall organization.

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87 views16 pages

Decentralization

This document summarizes Decentralization Group Eight. The group members are Azzahra, GEA Puspa Dewi, and Prillia Dwina. It defines decentralization as delegating decision-making authority away from central authority. Decentralized organizations allow managers at various levels to make key operating decisions. Benefits include lower-level managers gaining experience, better information for decisions, and ability to respond quickly to customers. Disadvantages can include lack of coordination and objectives not aligning with the overall organization.

Uploaded by

Jara Luthfi
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
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Decentralization Group Eight

Members of The Group


AZZAHRA 1001103010075

GEA PUSPA DEWI 1001103020049 PRILLIA DWINA 1001103010074

Definition of Decentralization
Decentralization is the policy of delegating decision-making authority down to the lower levels in an organization, relatively away from and lower in a central authority.

A decentralized organization is one in which decision making is not confined to a few top executives but rather is throughout the organization, with managers at various levels making key operating decisions relating to their sphere of responsibility.

Decentralization in Organizations Benefits of Decentralization


Lower-level managers gain experience in decision-making. Lower-level decisions often based on better information.

Top management freed to concentrate on strategy.

Decision-making authority leads to job satisfaction.

Lower level managers can respond quickly to customers.

Decentralization in Organization
Lower-level managers may make decisions without seeing the big picture. May be a lack of coordination among autonomous managers.

Disadvantages of Decentralization
Lower-level managers objectives may not be those of the organization. May be difficult to spread innovative ideas in the organization.

Cost, Profit, and Investments Centers


Cost Center Profit Center Investment Center

Responsibility Center

Cost, profit, and investment centers are all known as responsibility centers.

Responsibility Centers
Investment Centers
Operations Vice President
Superior Foods Corporation Corporate Headquarters President and CEO

Finance Chief FInancial Officer

Legal General Counsel

Personnel Vice President

Salty Snacks Product Manger

Beverages Product Manager

Confections Product Manager

Bottling Plant Manager

Cost Cost Center Centers sthe Superior Foods Corporation provides an example of
Warehouse Manager Distribution Manager

Profit Center

various kinds of responsibility centers that exist in an organization.

Decentralization and Segment Reporting


A segment is any part or activity of an organizatio n about which a manager seeks cost, revenue, or profit data.
An Individual Store
Quick Mart

A Sales Territory

A Service Center

Keys to Segmented Income Statements There are two keys to building segmented income statements:
A contribution format should be used because it separates fixed from variable costs and it enables the calculation of a contribution margin.

Traceable fixed costs should be separated from common fixed costs to enable the calculation of a segment margin

Identifying Traceable Fixed Costs Traceable costs arise because of the existence of a particular segment and would disappear over time if the segment itself disappeared. Identifying Common Fixed Costs Common costs arise because of the overall operation of the company and would not disappear if any particular segment were eliminated.

Segment Margin
The segment margin, which is computed by subtracting the traceable fixed costs of a segment from its contribution margin, is the best gauge of the long-run profitability of a segment. Profits

Time

Levels of Segmented Statements


Our approach to segment reporting uses the contribution format.
Income Statement Contribution Margin Format Television Division Sales $ 300,000 Variable COGS 120,000 Other variable costs 30,000 Total variable costs 150,000 Contribution margin 150,000 Traceable fixed costs 90,000 Division margin $ 60,000
Contribution margin is computed by taking sales minus variable costs. Cost of goods sold consists of variable manufacturing costs.

Fixed and variable costs are listed in separate sections.


Segment margin is Televisions contribution to profits.

Levels of Segmented Statements

Sales Variable costs CM Traceable FC Division margin Common costs Net operating income

Income Statement Company Television $ 500,000 $ 300,000 230,000 150,000 270,000 150,000 170,000 90,000 100,000 $ 60,000 25,000 $ 75,000

Computer $ 200,000 80,000 120,000 80,000 $ 40,000

Common costs should not be allocated to the divisions. These costs would remain even if one of the divisions were eliminated.

Return on Investment (ROI) Formula


Income before interest and taxes (EBIT)

Net operating income ROI = Average operating assets


Cash, accounts receivable, inventory, plant and equipment, and other productive assets.

Understanding ROI
Net operating income ROI = Average operating assets Net operating income Margin = Sales

Sales Turnover = Average operating assets


ROI = Margin Turnover

Increasing ROI An Example


Regal Company reports the following: Net operating income $ 30,000 Average operating assets $ 200,000 Sales $ 500,000 Operating expenses $ 470,000 What is Regal Companys ROI?

ROI = Margin Turnover ROI = Net operating income Sales


ROI = ROI =

Sales Average operating assets

$30,000 $500,000 $500,000 $200,000 6% 2.5 = 15%

The Balanced Scorecard


Management translates its strategy into performance measures that employees understand and influence.
Customers

Financial

Performance measures
Internal business processes Learning and growth

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