Part a.
You have just been appointed to the position of Finance Director for a large multinational corporation. The business operates in about 20 countries around the world and has a very diverse product, service and business portfolio. Some of the businesses within the group buy from one another. You are looking at ways to maximise profits for the corporation as a whole and as such you are investigating different ways to measure the performance of individual managers who each have responsibility for one part of the portfolio. As the organisation's Finance Director you have been asked to advise the Board of Directors as to which of the following three approaches to measuring performance is best for the organisation:
1) Cost Centre management; or
2) Profit Centre management; or
3) Investment Centre management?
Your answer should include a critical review of each approach.
Part b.
Organisations need to know the cost of products or services they provide for a variety of decision making situations. Critically evaluate the following three approaches to costing products or services:
1. Marginal or variable costing;
2. Full or absorption costing;
3. Activity Based costing (ABC).
For each approach, identify two managerial decision making situations where that approach is more appropriate than the other two and justify why you have chosen that approach over the other two approaches in a particular decision making situation.