Chapter 11 Performance Measurement in anizations Solutions to Questions 11-1 In a anization, decision-making authority isn’t confined to a few top executives; instead, decision-making authority is spread throughout anization. 11-2 The benefits of decentralization include: (1) by delegating day-to-day problem solving to lower-level managers, top management can concentrate on bigger issues such as overall strategy; (2) empowering lower-level managers to make decisions puts decision-making authority in the hands of those who tend to have the most detailed and up-to-date information about day-to-day operations; (3) by eliminating layers of decision-making and approvals, organizations can respond more quickly to customers and to changes in the operating environment; (4) granting decision-making authority helps train lower-level managers for higher-level positions; and (5) empowering lower-level managers to make decisions can increase their motivation and job satisfaction. 11-3 The manager of a cost center has control over cost, but not revenue or the use of investment funds. A profit center manager has control over both cost and revenue. An investment center manager has control over cost and revenue and the use of investment funds. 11-4 Margin is the ratio operating e to total sales. Turnover is the ratio of total sales to average operating assets. The product of the two numbers is the ROI. 11-5 Residual e is operating e an investment center earns above pany’s minimum required rate of return on operating assets. 11-6 If ROI is used to evaluate performance, a manager of an investment center may reject a profitable investment opportunity whose rate of return exceeds pany’s required rate of return but whose rate of return is less than the investment center’s current ROI. The residual e approach es this problem because any project whose rate of return exceeds pany’s minimum required rate of return will result in an increase in residual e. 11-7 The difference betwe