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Application of Organizational Structure

question 15

Multiple Choice

Application of Organizational Structure
Jim Johnson is the CEO of a major manufacturer of farming equipment. His company has been in business for the last 100 years and has been very profitable. The company is very formal and tall with formalized communication channels and rigid hierarchical relationships. Mr. Johnson makes all major decisions. This has worked very well until lately. It has begun to have some major global competition. Companies overseas are bringing new products into the United States at a lower price.
Furthermore, just yesterday, the new vice- president had mentioned that he felt that there was a major market overseas for the company's products. As its strategy was beginning to change, Mr. Johnson also realized its structure too would need to change, but to what? The company was large and, prior to these changes, the technology utilized, while extensive, had been very routine. What is he to do?
-Which type of decision- making authority is currently being used in the company?

Definitions:

Direct Materials

The raw materials that can be directly attributed to the production of a product and are a part of the finished product.

Variable Overhead Rate Variance

The difference between the actual variable overhead incurred and the expected (standard) cost based on the actual level of activity.

Materials Price Variance

The difference between the actual cost of direct materials and the standard cost, multiplied by the actual quantity of materials purchased.

Labor Rate Variance

The difference between the expected cost of labor per unit of production and the actual cost, often used to identify efficiency and wage rate changes.