UNO-R, MANACC 430

MODULE 2
PERFORMANCE MEASUREMENT IN
DECENTRALIZED ORGANIZATION

INTRODUCTION

Once an organization grows beyond a few people, it becomes impossible for

the top management to make decisions about everything. Top managers must
delegate some decisions. This module will introduced decentralized management
operations as compared to centralized organization. Since decentralized
organization delegate decision making responsibility, they need responsibility
accounting system that link lower- level managers’ decision making authority with
accountability for the outcomes of those decisions. Responsibility centers will be
identified. The module will also discuss Segmented reporting and how the
investment center performance will be evaluated. A short discussion about transfer
pricing is included in this module.

Learning Objectives:

At the end of this module, the students will be able to:

1. Understand the advantages and disadvantages of Decentralized business
operations compared to the Centralized operations
2. Prepare a segmented income statement using the contribution margin format, and
explain the difference between traceable fixed costs and common fixed costs.
3. Evaluate and measure investment center performance using the different
investment measurement tools
4. Evaluate Operating performance meaures
5. Know transfer pricing

DISCUSS/EXPLAIN

* Decentralized organization vs. Centralized management or organization

Advantages and Decentralization

1. Delegating day to day problem solving to lower level managers, top management
can concentrate on bigger issues such as overall strategy.
2. Empoweing lower-level managers to make decision puts the decision making
authority in the hands of those who tend to have the most detailed and up-to-date
information about the day-to-day operations
3. By eliminating layers of decison making and approvals, organization can respond
more quickly to customers and to changes in the operation environment.
4. Grandting decision-making authority helps train lower level managers for higher
leverl positions
5. Empowering lower-level managers to make decisions can increase their
motivation and job satisfaction.

Disadvantages of Decentralization:
1. Lower level managers may make decisions without fully understanding the big
picture
2. If lower managers make theirown decisions, coordination maybe lacking
3. Lower managers may have objectives that clash with the objectives of the entire
organization.
4. Spreading innovation ideas maybe difficult in a decentralized organization

* Responsibility Accounting
* Responsibility centers
* Segmental Reporting
* Traceable and common fixed costs
* Segment margin

Evaluating Investment Center Performance (ROI)

* Net Operating Income
ROI using Dupont system
* Residual IncomeMethod

Operating Performance Method

* Delivery cycle time

* Throughput (Manufacturing cycle time)
- Process time + Inspection time + Move time + Queue time
Value added time is the process time
Non-value added time are the wait time, inspection time, move time and
queue
* Manufacturing Cycle Efficiency (MCE)
= Value added time (Process time) / Throughput (manufacturing cycle ) time

Transfer Price

Assigned Problems: (from the book Managerial Accounting, Asia Global edition.
Second edition, by Garrison, et al.)

Problem 13 - 23 Problem 13 - 28
13 - 24 13 - 30
13 - 26 13A - 5

Instruction: Submit it here using Edmodo, thru MS (word, excel or pdf) or in a

clean paper and clear penmanship and take a shot.
Deadline: May 6, 2021 11:59 am

Case #2 - Music Teachers, Inc.

Instruction: Submit thru Edmodo, using MS (word, excel or pdf)
Deadline : May 6, 2021 11:59am