The President of Silicon Company Has Just Returned from a Week

question 140

Essay

The president of Silicon Company has just returned from a week of professional development courses and is very excited that she will not have to change the organization from a centralized structure to a decentralized structure just to have responsibility centers. However, she is somewhat confused about how responsibility centers relate to centralized organizations where a few managers have most of the authority.
Required:
Explain how a centralized organization might allow for responsibility centers.

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Definitions:

Direct Method

A cost allocation method that assigns service departments’ costs directly to producing departments without any intermediate steps.

Support Department Costs

Expenses incurred by service departments within a company that do not directly contribute to making a product but are necessary for the business to operate.

Assembly Department

A section within a manufacturing facility where components are assembled into final products, often involving both human labor and machinery.

Direct Method

A costing method that directly allocates service department costs to producing departments without apportioning them among the service departments themselves.