Chapter 12
Segment Reporting and Decentralization

Solutions to Questions

12-1 In a decentralized organization, decision-making authority isn’t confined to a few top executives, but rather is spread throughout the organization with lower-level managers and other employees empowered to make decisions.

12-2 The benefits of decentralization include: (1) freeing top managers to focus on strategy, higher-level decision making, and coordinating activity; (2) improving operational decision making, since lower-level managers often have better information about local conditions; (3) enabling quicker response to customer needs; (4) training lower-level managers to take on greater responsibility; and (5) providing greater motivation and job satisfaction for lower-level managers.

12-3 A cost center manager has control over cost, but not revenue or investment funds. A profit center manager has control over both cost and revenue. An investment center manager has control over cost and revenue and investment funds.

12-4 A segment is any part or activity of an organization about which a manager seeks cost, revenue, or profit data. Examples of segments include departments, operations, sales territories, divisions, product lines, and so forth.

12-5 Under the contribution approach, costs are assigned to a segment if and only if the costs are traceable to the segment. Common costs are not allocated to segments under the contribution approach.

12-6 A traceable cost of a segment is a cost that arises specifically because of the existence of that segment. If the segment were eliminated, the cost would disappear. A common cost, by contrast, is a cost that supports more than one segment, but is not traceable in whole or in part to any one of the segments. If the departments of a company are treated as segments, then examples of the traceable costs of a department would