Last Modified: 2011-07-14
- effective in smaller organizations
- implemented in large organizations
- decision making in hands of those closest to operations
- managers make decisions in their own interest
- Return on investment( ROI)
- Residual Income
- Cost Center
- Profit Center
- Investment Center
- Allows managers closest to operations to make decisions
- provides training
- allows managers to become experts
- helps retain managers
- improves creativity and customer relations
- duplicates assets and expenses
- decisions by managers may negatively affect the profits
- Require the allocation of service department costs to each center based on their usage
- controllable if the center is able to choose how much services to use
- Market price approach- set at which the produce or service would be sold to someone outside the company
- Negotiated price approach- set at the Buying and Selling price division agree on
- Cost price approach- set on total product cost or variable product cost per unit
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