Professional Documents
Culture Documents
2 Structure and Responsibility Centres
2 Structure and Responsibility Centres
Responsibility Accounting
Topic 2 Objectives
• Work Units
– Be able to recognise different types of work units and
understand when they are most appropriate
– Understand the role of work units in management control
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Topic 2 Objectives
• Decentralisation
– Understand the concept of decentralisation and the
creation of responsibility centres or sub-units
– Understand the link between decentralisation and
responsibility accounting
– Understand the role of decentralisation and responsibility
accounting in management control
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Types of work units
CEO
CEO
Design Supply Mftg Mktg Sales
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Organisational structures and work units
CEO
Diamonds
Petroleum
Coal
CEO
Back-end Front-end
Organised by function Organised by
or product client, region
– Standardised products
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When are market-based structures appropriate?
• Dissimilar markets
• Capable managers
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Business strategy and organisational structure
• Each type of work unit has its own benefits and limitations
• These benefits/limitations allow different means of
competitive advantage to be matched to different work
unit types
– Differentiation – tend to be market based work units
– Cost Leader – tend to be functional work units
• When interdependencies between work units are
important, horizontal information flows are important
• A well designed structure should provide incentives to
share information with other divisions or work units
o Fosters collaboration and avoids silo mentality
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Benefits of market-based responsibility centres
Therefore responsiveness to
customers is enhanced
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Limitations of market-based work units
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Benefits of functional work units
• Economies of scale
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Limitations of functional work units
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Limitations of functional work units
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A Decentralised Organisational Structure
• Decentralised firms
– Work units are generally necessary
– Work unit managers have decision making power
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Why do firms decentralise?
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Decentralisation
– Empowers employees
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Decentralisation
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Decentralisation
• Potential problems
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Requirements for successful decentralisation
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Responsibility accounting
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Performance measurement in decentralised units
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Types of Responsibility Centres
• Cost centre
– Two types
o Engineered or
o Discretionary
• Revenue centre
• Profit centre
• Investment centre
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Cost centres
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Engineered cost centres
Examples
• Manufacturing units, some data entry and administration
units
Characteristics
• Input /output relationships are well understood
– optimal amount of input required to produce one unit of
output can be determined
• Once desired output is known, inputs can be determined
• Performance measurement is relatively easy
– Use of standards, flexible budgets, variance analysis
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Discretionary costs centres
Examples
Characteristics
• Difficult to measure output – it’s often qualitative
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Discretionary cost centres continued
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Profit centres
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Investment centres
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Choice of responsibility centre
• Choice of types of responsibility centres depends on:
– size of organisation
– nature of organisation
– organisational structure.
• Functional work units tend to be?
– Cost or revenue centres
o Production department
o Sales department
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Responsibility centre and management control
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Influencing behaviour
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Controlling management actions
Sp
Span of control
ce Resources (people & work units) directly under a managers control
e n who is accountable to whom but not what they are accountable for
f u
l with?
f n
I nteract
o
nWho c nI
i
a a
Span of accountability
Sp Range of performance measures to evaluate achievements
(i.e. quality, cost, profit & loss, investment responsibility etc.)
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