Decentralization divides company operations into various reporting units. most decentralized subunits can be described as one of four different types of responsibility centers. requirements 1. explain why companies decentralize. describe some typical methods of decentralization. 2. list the four most common types of responsibility centers, and describe their responsibilities.

1. Companies can decentralize for several reasons:

Some common methods of decentralization are:

2. The four most common types of responsability centers are:

Expense centers - The goal is to minimize expenses in the long-term. Expenses have to be incurred in the operation of a company, but these shoul be minimized in the long-term in order to maximize profit.

On the other hand, minimizing expenses in the short-term can lead to increases in long-term expenses. For example, buying cheaper machinery can the reduce costs in the meantime, but with time, those machines will have to be replaced sooner than expected, and total expenses will rise.

Investment centers - The goal is to maximize the rate of return.

The rate of return the profit as percentage of the cost of the investment. The manager can invest money different forms of capital, whether they are directly related to the daily operation or not.

For example, the investment center of a car factory can invest in more machinery, or can invest in stocks; what is important is to maximize the rate of return of those investments.

Profit centers - The goal is to maximize profit

Must be in close contact with the revenue and expenses centers, because profit is equal to revenue minus expenses.

In some companies, the profit center manager is the revenue and expense center manager at the same time. This manager controls sales price and volume, which are the most important factors in determining sales revenue, and therefore, profit.

Revenue center - The goal is to maximize sales - closely related to the expenses center, and the profit center. The manager has to supervise sales volume and price, but he may not be in direct control of it.

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