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Decentralized Ops & Segment Analysis

Decentralized operations delegate decision making authority throughout an organization. Segment reporting involves dividing a company into parts or activities and tracking costs, revenues, and profits for each segment. A segmental income statement shows contribution margin, segment margin, and operating income for each segment and the overall company. Contribution margin is sales minus variable costs, and segment margin further deducts traceable fixed costs to indicate long-run profitability of each segment.

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83 views1 page

Decentralized Ops & Segment Analysis

Decentralized operations delegate decision making authority throughout an organization. Segment reporting involves dividing a company into parts or activities and tracking costs, revenues, and profits for each segment. A segmental income statement shows contribution margin, segment margin, and operating income for each segment and the overall company. Contribution margin is sales minus variable costs, and segment margin further deducts traceable fixed costs to indicate long-run profitability of each segment.

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pdmallari12
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DECENTRALIZED OPERATIONS AND SEGMENT REPORTING

1. Concept of Decentralized Operations


 Decentralization – process of delegating the decision-making authority throughout an organization
 Centralized approach
 Top management retains control over key business functions, ensuring a desired level of
performance.
 With top management involvement in most decisions, the expertise of top management can be
effectively coordinated.
 Decentralized approach
 Managers are allowed at various operating levels the authority to make decisions relating to their
area of responsibilities.
 Informal relationships and channels of communication can develop outside the formal reporting
relationships on the organization chart as a result of personal contact among managers.
2. Segmental Income Statement
 Segment – part or activity of an organization about which manager seeks costs, revenue or profit data.
 Contribution margin for the segment is particularly useful in determining what happens to profit as
volume changes, assuming that the segment’s capacity and fixed costs are constant.
 Only the traceable or direct fixed costs are charged to the segments. Traceable fixed costs of a
segment is a fixed cost that is incurred as a consequence of the existence of the segment and could be
easily identified or traced to the particular segment.
 Segment margin represents the margin available after a segment has covered all of its own costs and
the best gauge of the long-run profitability of a segment.

Company Division A Division B
Sales P xx P xx P xx
Less: Variable Cost of Goods Sold xx xx xx
Manufacturing Margin xx xx xx
Less: Variable Operating Expenses xx xx xx
Contribution Margin xx xx xx
Less: Controllable Fixed Costs xx xx xx
Contribution Controllable by Managers xx xx xx
Less: Fixed Costs Controllable by others xx xx xx
Segment Margin xx P xx P xx
Less: Common Fixed Costs xx
Operating Income P xx


Company Division A Division B
Sales P xx P xx P xx
Less: Variable Cost of Goods Sold xx xx xx
Manufacturing Margin xx xx xx
Less: Variable Operating Expenses xx xx xx
Contribution Margin xx xx xx
Less: Traceable Fixed Costs xx xx xx
Segment Margin xx P xx P xx
Less: Common Fixed Costs xx
Operating Income P xx

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