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Chapter 24: Q1RQ (page 1355)

Explain the difference between a centralized company and a decentralized company.

Short Answer

Expert verified

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.

Step by step solution

01

Meaning of Centralized Company

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.

02

Difference between a centralized company and a decentralized company.

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.

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Most popular questions from this chapter

What is the typical focus of responsibility reports for cost centers, revenue centers, and profit centres?

Using ROI and RI to evaluate investment centers

Consider the following condensed financial statements of Pure Life, Inc. The company’s target rate of return is 30%.

PURE LIFE, INC. Income Statement For the Year Ended December 31, 2018 Net Sales Revenue Cost of Goods Sold Gross Profit Operating Expenses 2,300,000 2,000,000 300,000 (34,000) 266,000 3,700,000 \( 6,000,000 Operating Income Interest Expense Other Income and (Expenses): Income Before Income Tax Expense Income Tax Expense Net Income 93,100 \) 172,900

PURE LIFE, INC. Comparative Balance Sheet As of December 31, 2018 and 2017 Assets 2018 2017 Cash Accounts Receivable Supplies Property, Plant, and Equipment, net Patents, net Total Assets Accounts Payable Short-term Notes Payable Long-term Notes Payable Common Stock, no Par Retained Earnings Total Liabilities and Stockholders’ Equity Liabilities and Stockholders’ Equity \( 62,000 200 204,000 101,000 \) 394,000 26,800 \( 76,000 600 305,000 163,000 \) 606,000 61,400 52,000 \( 31,000 126,500 169,000 15,500 \) 394,000 148,000 \( 29,000 196,000 205,500 27,500 \) 606,000

Requirements

1. Calculate the company’s ROI. Round all of your answers to four decimal places.

2. Calculate the company’s profit margin ratio. Interpret your results.

3. Calculate the company’s asset turnover ratio. Interpret your results.

4. Use the expanded ROI formula to confirm your results from Requirement 1. Interpret your results.

5. Calculate the company’s RI. Interpret your results.

Refer to the information in Short Exercise S24-7. Compute each division’s RI. Interpret your results. Are your results consistent with each division’s ROI?

Match the responsibility center to the correct responsibility report.

Responsibility Centers

Responsibility Reports

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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