relevance lost

Topics: Management accounting, Costs, Cost accounting Pages: 43 (13996 words) Published: May 1, 2014
Relevance lost is a title of the book written by Johnson and Kaplan, where they were complaining that management accounting techniques emerged centuries ago, are still used, but they no longer relevant in today’s highly competitive environment. CHAPTER 5 - CONTROLLING THE MULTI DIVISIONAL ORGANIZATION 

64. What are the two major obstacles to the success of the integrated firm?   
    1. Complexity - or the bureaucratic paralysis caused by complexity. 
    2. Management indifference to the owner's goals (p.94). This potential problem resulted when managers replaced owners in performing the managerial functions. 65. How did the integrated firms cope with these problems? Multi divisional firms might have developed better accounting systems, (e.g., using Church's ideas) but instead they coped with these obstacles using decentralization (p.94-96). In decentralized firms, top management plans strategy, while subordinate managers coordinate and control operating activities (p.97). 66. What was the New Use Developed For ROI? J&K indicate that ROI was used to delegate responsibility and allocate funds, i.e., capital (p.98). (Note: Technically, responsibility can be assigned, but not delegated. The authority to act on one's behalf can be delegated as when someone is hired to do a tax return, but the taxpayer is still responsible.) 67. Success of multi divisional firms depends on the management accounting system to perform three task better than the capital markets. What are they? 1. Provide strong profit incentives for managers. 2. Internal audits that link performance to causes. 3. Develop monitoring and measuring procedures to help allocate cash flows to high yield uses, i.e., measure the effectiveness of capital rationing choices (p.99).Thus, the management accounting system provided a mechanism to evaluate general managers and to channel their self interest towards the owner's interest in profits (p.99). 68. Why did the founder of GM fail? The founder of GM (William C. Durant) failed because of his centralized organization - there was too much detail for centralized management to handle. 69. What new techniques did Pierre du Pont and Alfred Sloan use when they took control of GM? They developed a multi divisional structure for GM and Donaldson Brown used Dupont's management accounting control techniques to perform 3 tasks. These tasks involved centralized control over decentralized responsibility. They used: 1. Annual operating forecasts. 2. Sales Reports and Flexible budgets and 3. A management accounting system that allocated resources and rewards on a uniform basis of performance criteria (p.102). 70. What was the annual "Price Study" and why was it used? To deal with seasonal and cyclical trends that were difficult to predict, Brown designed a technique referred to as the Annual "Price Study" that had three elements: (p.103ff.). 1. Forecast of operations by division based on expected volume. 2. Forecast of operations by division based on standard volume (80% of capacity). 3. Developing a standard price for each product. This was the factory delivered price needed to generate a 20% ROI at the standard volume. 71. What two management accounting procedures were viewed as even more important than the forecasts? 1. Sales Reports and 2. Flexible budgets - used to develop separate information about sales volume effects and the effects of operation efficiency (p.108). These techniques helped them improve inventory turnover (p.112). Few flexible budgets were used prior to the 1920's. Brown did not use the term flexible budget, but he did use the technique in 1923. (p.110). In addition, Brown developed market share data (p.109). 72. What was the management accounting system's major contribution? It was used to promote goal congruence (p.113). 73. How did GM deal with the problems of ROI (e.g., under investment), i.e., promote goal congruence? GM used three approaches to promote goal...
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