Explain the difference between a centralized company and a decentralized company.
The act of solidifying control and specialist within the hands of top administration is known as centralization. Decentralization, on the other hand, portrays the top-down exchange of specialists to functional-level administration.
Top-down decision-making is fundamentally favoured in centralized organizational structures. One individual or an official group must endorse all suitablechoices and be communicated through numerous levels of administration.
The owner or senior management makes all planning and managing decisions in a small business. Small businesses are commonly considered centralized since doing so is more straightforward given the scale of their activities.
Decentralized companies divide their activities into many sections or departments. Geographical (domestic and international), the client (commercial and residential), product (motorcycles and all-terrain vehicles), company function (sales and service), or another business attribute may be the basis for decentralization.
Decentralization divides company operations into various reporting units. Most decentralized subunits can be described as one of four different types of responsibility centers.
1. Explain why companies decentralize. Describe some typical methods of decentralization.
2. List the four most common types of responsibility centers, and describe their responsibilities.
Question: The accountant for a subunit of Speed Sports Company went on vacation before completing the subunit’s monthly responsibility report. This is as far as she got:
Speed—Subunit X Revenue by Product Actual Results Flexible Budget Variance Flexible Budget Sales Volume Variance Static Budget
Downhill-RI $ 321,000 (a) (b) $ 17,000 F $ 295,000
Downhill-RII 151,000 (c) $ 161,000 (d) 145,000
Cross-EXI 285,000 $ 3,000 U 288,000 (e) 303,000
Cross-EXII 259,000 (f) 255,000 16,500 U 271,500
Snow-LXI 425,000 2,000 F (g) (h) 404,000
Total $ 1,441,000 (i) (j) (k) $ 1,418,500
1. Complete the responsibility report for this subunit.
2. Based on the data presented, what type of responsibility center is this subunit?
3. Which items should be investigated if part of management’s decision criteria is to investigate all variances exceeding $12,000?
Match the responsibility center to the correct responsibility report.
14. Cost center
a. Includes flexible budget variances for revenues and costs.
15. Revenue center
b. Includes flexible budget variances for costs.
16. Profit center
c. Includes flexible budget variances and sales volume variances for revenues.
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