Chapter 12 Financial performance reports and transfer pricing Copyright ª 2006 McGraw­Hill Australia Pty Ltd 12­ 1 Decentralisation and responsibility accounting • Decentralisation – The restructuring of the organisation into smaller sub-units, such as divisions and departments, each with specific operations and decision-making responsibilities • Responsibility accounting – Assign responsibility to managers to run particular sub-units of the organisation – Helps to reinforce the advantages of decentralisation • Goal congruence helps ensure that decentralised organisations are effective – Consistency between managers’ personal goals and the goals of the organisation Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a Management Accounting: Information for managing and creating value 4e Slides prepared by Kim Langfield-Smith 12-2 Decentralisation • Benefits – Managers of sub-units have better local information about markets and operations to enable them to manage their areas more effectively – Provides managerial training for future higher-level managers – May lead to greater motivation and job satisfaction for sub-unit managers – Allows corporate managers more time for strategic issues – Allows the organisation to react more quickly to opportunities and problems as they arise continued Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a Management Accounting: Information for managing and creating value 4e Slides prepared by Kim Langfield-Smith 12-3 Decentralisation • Negative consequences – Managers may focus too narrowly on their own sub-unit’s performance rather than on attaining the organisation’s overall goals – Some tasks and services may be duplicated unnecessarily • Goal congruence: a behavioural challenge – Goal congruence may be difficult to achieve in a decentralised organisation – Performance measures and reward systems may provide direction and incentives to achieve wider organisational goals Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a Management Accounting: Information for managing and creating value 4e Slides prepared by Kim Langfield-Smith 12-4 Responsibility centres • A responsibility centres is a sub-unit of an organisation where the manager is held accountable for the sub-unit’s activities and performance – Investment centre – Profit centre – Cost centre – Revenue centre continued Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a Management Accounting: Information for managing and creating value 4e Slides prepared by Kim Langfield-Smith 12-5 Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a Management Accounting: Information for managing and creating value 4e Slides prepared by Kim Langfield-Smith 12-6 Responsibility centres • Terminology used in practice – Cost centre is commonly used – Revenue centre seldom used – Profit centre may refer to both profit centres and investment centres – Strategic business unit (SBU) often used to refer to investment centres and, sometimes, profit centres which have their own distinct markets and strategies Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a Management Accounting: Information for managing and creating value 4e Slides prepared by Kim Langfield-Smith 12-7 New developments in organisational structuring • Shared services – The concentration of some support services that are typically spread across a decentralised organisation into a separate unit to service multiple internal customers – May focus on non-strategic areas, such as accounts payable, payroll, finance, information technology – Capture the best aspects of centralised and decentralised structures – Business units may choose to use a shared service unit or an outside provider, so there is an incentive for shared service units to deliver high quality service to internal customers continued Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a Management Accounting: Information for managing and creating value 4e Slides prepared by Kim Langfield-Smith 12-8 Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a Management Accounting: Information for managing and creating value 4e Slides prepared by Kim Langfield-Smith 12-9 New developments in organisational structuring • Team-based structures – Firms have moved away from hierarchical structures towards flatter structures that involve fewer levels of management – Self-managed work teams may be used to manage all aspects of a process – In the production area, team responsibilities may include Production planning, ordering materials, liaising with suppliers and customers, all aspects of the production process, cost budgets and performance management continued Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a Management Accounting: Information for managing and creating value 4e Slides prepared by Kim Langfield-Smith 12-10 New developments in organisational structuring • Team-based structures – Teams may manage some processes more effectively – Teams may promote employee satisfaction, improved customer satisfaction and productivity Greater empowerment may result from the transfer of decision-making responsibility from middle managers to teams – Teams are often set up as cost centres Non-financial measures may be more important in managing a team than cost measures Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a Management Accounting: Information for managing and creating value 4e Slides prepared by Kim Langfield-Smith 12-11