Reference no: EM131736099

"I am asking to reword the answers to essay type parts so as to guarantee that my answer is an original.

1. What type of center is the Charlotte facility? Would you characterize it as an investment center, profit center, revenue center or cost center? Give specific reasons why you chose your answer.

The facility functions as an investment center and is responsible for strategies to use its' assets effectively and obtain a return on the capital it uses. The investment center also controls the cost, revenue, and the investment level. Because of this it is treated like a separate business that accountable for such decisions affecting ultimately the Return on Investment.

2. What are the advantages and disadvantages of a decentralized organization structure?

Advantages - The dynamics of the company is to encourage learning and lower level management receives inputs from employees in the operations. The company is more flexible to adapt to methods on how to improve the product faster which ultimately increases customer satisfaction. The lower level managers make more day to day decisions allowing top management to concentrate on strategy. This allows the lower level managers to experience and prepare them to higher level positions. There's increased level of training so more members of the company can have autonomy leading to increased job satisfaction and interest in working harder in the company.
Disadvantages - Since the top management has more information, the lower level managers have to make decisions with less overall perspective. Some managers who enjoy the autonomous style may have difficulty communicating and coordinating with the rest of the organization. They may also have different objectives and try to manage their division separately from the main goals of the organization. The company's strategy and policy needs to be clear so communication and management can be effective.

3. The Charlotte plant receives some products used in the manufacturing of envelopes, cups and packaging from the South Carolina plant. Recently there have been some heated discussions about the prices charged Charlotte by Timberland,the South Carolina plant. The product, cremodium, has cost Charlotte $80 per batch. This covers all marginal costs incurred by the South Carolina facility. The
South Carolina facility is a profit center and agues that they can sell cremodium on the open market for $120. Which method, as presented in your text, should be used in this instance and why? Does
it make a difference if the South Carolina plant has no idle capacity?

Market based transferred prices seems to fit this perfectly. Since there are external markets for the intermediate product it would be the most appropriate basis for pricing between responsibility centers. The market price provides an independent valuation of the Cremodium and how much each profit center has contributed to the total profit earned by the company on each transaction. There can still be some consideration for selling between plants by offering some discount while maintaining the profitability to South Carolina. If South Carolina has no idle capacity, it cannot manufacture any additional products without incurring additional costs, so there would be a difference. If there would be issues of any kind, there is no room for such and would cause problems."