Tm f1s Draft

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1, INRODUCTION; MEANING OF CONCEPTS

1.1. Management Accounting

Management accounting ormanagerial accounting is concerned with the provisions anduse ofaccounting information to managers within organizations, to provide them with the

basis to make informed business decisions that will allow them to be better equipped intheir management and control functions. In contrast to financial accountancy information,management accounting information is: designed and intended for use by managers within

the organization, instead of being intended for use by shareholders, creditors, and public

regulators; usually confidential and used by management, instead of publicly reported;forward-looking, instead of historical; computed by reference to the needs of managers,

often using management information systems, instead of by reference to general financial

accounting standards. In short, it is a process of preparing management accounts that provideaccurate and timely key financial and statistical information required by managers to makeday-to-day and short-term decisions

1.2 Centralized Company

A centralized company refers to managementpractice in which all or most decision

makers (who have the authority, control, and responsibility for the entire organization) arelocated in one central office (the headquarters). It is a company in which the activities of

an organization, particularly those regarding decision-making, become concentrated within

a particularlocation and/or group.

1.3 A Profit Center

.According to Drucker, Peter F. (2002)throughWikipedia, the free encyclopedia, a profit

center is a part of a corporation that directly adds to itsprofit. A profit center is a section ofa company treated as a separate business. Thus profits or losses for a profit center arecalculated separately.

A profit center manager is held accountable for both revenues, and costs (expenses), and

therefore, profits. What this means in terms of managerial responsibilities is that the

manager has to drive the sales revenue generating activities which leads to cash inflowsand at the same time control the cost (cash outflows) causing activities. This makes the

profit center management more challenging than cost centre management. Profit center

management is equivalent to running an independent business because a profit center

business unit or department is treated as a distinct entity enabling revenues and expenses to

be determined and its profitability to be measured.

Business organizations may be organized in terms of profit centers where the profit center's

revenues and expenses are held separate from the main company's in order to determinetheir profitability. Usually different profit centers are separated foraccounting purposes so

that the management can follow how much profit each center makes and compare their

relative efficiency and profit. Examples of typical profit centers are a store, a sales

organization and a consulting organization whose profitability can be measured.

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http://en.wikipedia.org/wiki/Accountinghttp://en.wikipedia.org/wiki/Financial_accountancyhttp://en.wikipedia.org/wiki/Management_information_systemhttp://www.businessdictionary.com/definition/process.htmlhttp://www.businessdictionary.com/definition/management-accounts.htmlhttp://www.businessdictionary.com/definition/provide.htmlhttp://www.businessdictionary.com/definition/accurate.htmlhttp://www.investorwords.com/10128/key.htmlhttp://www.investorwords.com/5572/financial.htmlhttp://www.investorwords.com/11184/statistical.htmlhttp://www.businessdictionary.com/definition/information.htmlhttp://www.businessdictionary.com/definition/required.htmlhttp://www.businessdictionary.com/definition/manager.htmlhttp://www.investorwords.com/10256/make.htmlhttp://www.investorwords.com/12775/day_to_day_DTD.htmlhttp://www.investorwords.com/4563/short_term.htmlhttp://www.businessdictionary.com/definition/decision.htmlhttp://www.businessdictionary.com/definition/management.htmlhttp://www.businessdictionary.com/definition/practice.htmlhttp://www.businessdictionary.com/definition/decision.htmlhttp://www.businessdictionary.com/definition/maker.htmlhttp://www.businessdictionary.com/definition/authority.htmlhttp://www.businessdictionary.com/definition/control.htmlhttp://www.businessdictionary.com/definition/responsibility.htmlhttp://www.businessdictionary.com/definition/organization.htmlhttp://www.businessdictionary.com/definition/central-office.htmlhttp://www.wordiq.com/definition/Locationhttp://en.wikipedia.org/wiki/Corporationhttp://en.wikipedia.org/wiki/Profit_(accounting)http://en.wikipedia.org/wiki/Cost_centrehttp://en.wikipedia.org/wiki/Accountinghttp://en.wikipedia.org/wiki/Efficiency_ratiohttp://en.wikipedia.org/wiki/Accountinghttp://en.wikipedia.org/wiki/Financial_accountancyhttp://en.wikipedia.org/wiki/Management_information_systemhttp://www.businessdictionary.com/definition/process.htmlhttp://www.businessdictionary.com/definition/management-accounts.htmlhttp://www.businessdictionary.com/definition/provide.htmlhttp://www.businessdictionary.com/definition/accurate.htmlhttp://www.investorwords.com/10128/key.htmlhttp://www.investorwords.com/5572/financial.htmlhttp://www.investorwords.com/11184/statistical.htmlhttp://www.businessdictionary.com/definition/information.htmlhttp://www.businessdictionary.com/definition/required.htmlhttp://www.businessdictionary.com/definition/manager.htmlhttp://www.investorwords.com/10256/make.htmlhttp://www.investorwords.com/12775/day_to_day_DTD.htmlhttp://www.investorwords.com/4563/short_term.htmlhttp://www.businessdictionary.com/definition/decision.htmlhttp://www.businessdictionary.com/definition/management.htmlhttp://www.businessdictionary.com/definition/practice.htmlhttp://www.businessdictionary.com/definition/decision.htmlhttp://www.businessdictionary.com/definition/maker.htmlhttp://www.businessdictionary.com/definition/authority.htmlhttp://www.businessdictionary.com/definition/control.htmlhttp://www.businessdictionary.com/definition/responsibility.htmlhttp://www.businessdictionary.com/definition/organization.htmlhttp://www.businessdictionary.com/definition/central-office.htmlhttp://www.wordiq.com/definition/Locationhttp://en.wikipedia.org/wiki/Corporationhttp://en.wikipedia.org/wiki/Profit_(accounting)http://en.wikipedia.org/wiki/Cost_centrehttp://en.wikipedia.org/wiki/Accountinghttp://en.wikipedia.org/wiki/Efficiency_ratio


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2. TYPES OF DECISION AREAS FOR COMPANYS REORGANIZATION

2.1. Decision Area Transferred to the New Divisional Managing Directors

The types of decision area that should be transferred to the new divisional managingdirectors for the achievement of the reorganizations objectives are:

Decisions on the budgeting and finance by creating the divisions budget,implementing controls over spending and procurement to ensure adherence tothe company budget.

Decisions on providing leadership and assistance to their team members

Decisions on staffing and training by assisting recruiting, selecting,interviewing and hiring of new staffs for their new divisions

Decisions on conflict resolution by fostering positive relationships with staffs;

handling all intercompany disputes and conflicts

Decisions on establishment of goals by developing divisional policies for

achieving all company goals related to the responsibilities of the division

managers

2.2 Decision Area Retained at Company Head Office

The types of decision area that might reasonably be retained at company head office

Decision on companys master budget of a given period

Decision on overall responsibility for managing both the revenue and cost

elements of companys income statement (profit/loss responsibility)

Decision on companys marketing and sales by oversee most or all of the

firms marketing and sales function as well as the day-to-day operations of

the business

Project management administration, planning, estimating, purchasing, costaccounting and information handling

Leading or coordinating the strategic or corporate planning functions of thecompany

Aligning the company, internally and externally with the strategic vision

Facilitate business outside of the company

Guiding employees and other business managers towards a central;

objective

Decisions about what technologies, markets and products to go into and

what businesses to start or to abandon

Decisions on corporate finance and research

Decisions on corporate personnel policy and on key appointment

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2.3 The Possible Management Accounting Problems on Profit Centres

The management accounting problems that might be expected to arise in introducing

profit centers are:

Not preparing timely information by accounting system of a given profit

centre Incorrect allocation of overheads can lead to under or overestimation of

profitability

Increases administration and paperwork

There can be loss of overall central control of the company

Profit centers could be working towards different or non-company agendas

Increased opportunity for empire building by management

References

Drucker, Peter F. (2002). Managing in the Next Society; St. Martin's Griffin; New York,New York 10010

http://us.macmillan.com/managinginthenextsociety.

Retrieved from "http://en.wikipedia.org/wiki/Profit_center"

ABSTRACT

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