Question:
Evaluating Management Control Systems
SPG Company manufactures and sells metal products that are used in many manufacturing operations. The management at SPG believes strongly in decentralized decision making and using performance evaluation and compensation to encourage high-performing managers. Marilyn Conner's is the manager of the manufacturing operations, which produces and transfers the product to the marketing division. Jack Schwartz is the manager of marketing. Marilyn is evaluated on manufacturing cost relative to a budget for good output. Marilyn makes all production decisions. Jack is evaluated on company profit relative to a target. If a manager meets his or her target, they receive a bonus equal to 100 percent of salary.
Information on performance last year follows:
|
Manufacturing Cost
|
Company Profit
|
|
Target cost per unit
|
$2.37
|
Target profit
|
$10,000,000
|
|
Actual cost per unit
|
2.25
|
Actual profit
|
9,232,000
|
Required
What recommendations would you suggest for changes to the SPG management control system, if any? Discuss the delegation of decision authority, performance evaluation and measurement, and compensation design in your response.