Exercise 1 - Responsibility centers
Identify three responsibility centers in a fast-food restaurant and explain how they may interact.
Exercise 2 - Controllability and evaluation
Suppose you are the manager of a fitness center that is one of many in a chain. Give one example of a cost that you control and one example of a cost you do not control. Why is it important in this setting to distinguish between costs that are controllable and costs that are not controllable?
Exercise 3 - Residual income in a multiproduct company
Based on an analysis of operations, a company making sporting goods has determined that the income provided by its golf, ski, tennis, and football product lines are $3.5 million, $7.8 million, $2.6 million, and $1.7 million, respectively. The accountant believes that the investment levels in these product lines are $35 million, $50 million, $45 million, and $23 million, respectively. Use a residual income analysis to evaluate the performance of each of these product lines, assuming that the organization requires a 10% return on investment.
Exercise 4 - Assigning responsibility for uncontrollable events
Some people and organizations believe that the discussion of controllable and uncontrollable events is distracting in the sense that it encourages finger-pointing and an excessive preoccupation with assigning blame. These observers argue that it is more important to find solutions than to identify responsibility for unacceptable or acceptable events.
a. What do you think of this argument?
b. As an organization moves away from assessing and rewarding controllable performance, what changes would you expect to see in its organization structure?