Question

1. According to our book's definition, would McDonald’s Corp. have a centralized or decentralized structure? What would be some of the advantages and disadvantages of such a structure? (It would be good to include aspects that are specific to McDonald’s.)
2. What benefits are derived from using a refined costing system like Activity Based Costing (ABC)? Are there any negatives?
3. Let’s say that the manufacturer of LEGOs uses ABC. Come up with 3 activities and their related allocation bases for their production process.

Answer 1

Centralised Structure is where business is controled by top management and decision making
at the top of hieraechy. For example McDonald's Corp. is based on a centralised structure, where
all most decision are taken by top management with respect to various outlets. Applicability of
policies, quality control and customer's satisfaction programe is launched and control by the top
hieraechy.
While Decentralised Structure is opposite the centralised concept, where authority of decision
taking is kept with the head of that particular unitbranchoutlets of company. There are no more
control at top hieraechy.
Advantages of Centralised Structures:
> Uniformity in application of common policy and standard in whole organisational business
> Simplicity in managing from centre as standard budgeting system
> Minimum waste of resources as high control from centre
>Strong leadership and no conflict in decision
Disadvantages of Centralised Structures:
> Lack of decision making at lower level, even they are more closure to end users
> Demotivation at management of outlets as no authority
> Waste of time in some times even a small decision taken at top level
Activity Based Costing (ABC) is a method used to assigning overheads or indirect cost to product and
service. Under ABC costing cost s devided based on activity and referred as cost pool then assign each
cost pool to cost driver such as hour or unit then calculate cost driver rate by devide cost of overheads
by cost drivers to get cost driver rate and finally multiply with cost driver rate with number of cost driver.
These are some exapmle of Manufacturer of Logos for ABC costing:
Expenses	Cost Drive
Marketing expenses	Number of customer contact
Staff welfare	No. of staff
Office repair & Maintenance	No. of square feet