Question: a longestablished highly centralized company has grown to the extent...
A long-established, highly centralized company has grown to the extent that its Chief
Executive Officer, despite having a good supporting team, is finding it difficulty
keeping up with the many decisions of importance in the company.
Consideration is therefore being given to re-organizing the company into segments.
These segments will be headed by a managing director, who will be responsible for
all the segment’s activities relating to its products.
You are required to:
a) Critically discuss the decision areas that should be transferred to the new
managing directors if such a reorganization is to achieve its objectives;
b) Critically discuss the decision areas that might reasonably be retained at the
company head office;
c) Provide a detailed account of management accounting problems that might be
expected to arise in introducing effective segment control
d) Differentiate between traceable and common costs, and demonstrate the different
ways of allocating common costs to segments