CostActFinal

Accountable for specific activities

A system that measures the results of each responsibility center and compares those results with expected or budgeted outcomes

A responsibility center in which a manager is responsible only for costs

A responsibility center in which a manager is only responsible for reveneus

A responsibility center in which a manager is only responsible for revenues and costs

A responsibility center in which a manager is responsible for revenues, costs, and investments

Operating income

1. Cost Center
2. Revenue Center
3. Profit Center
4. Investment Center (Operating income and some type of return on investment are important)

Decisions are made at the very top level, lower level managers are charged with implementing the decisions

Allows managers at lower levels to make and implement key decisions pertaining to their area of responsibility. Decentralization is the practice of delegating decision making authority to the lower levels. MCN's (multinational companys are a special case of decentralized decision making.

1. Better access to local information
2. Cognitive limitations
3. More timely response
4. Focusing of centra management
5. Training and evaluation of segement managers
6. Motivation of segement managers
7. Enhanced competition

It has to do with mental ability

Segmenting the company into divisions, one way is by the type of goods or service produced, interdependencies still exist though, the presence of these interdependenies creates the need for transfer pricing. Companies can also create division by type of customer served.

1. Efficiency-How well activities are performed (number of units produced per hour for example)
2. Effectiveness-Whether the right activities have been performed (value added vs non value added actitivites)

The units profit contribution measured on income statements