Principal advantages of divisionalisation

Golfstore Retail plc was established five years ago by a small team of golf enthusiasts in Scotland. The company retails a range of quality golfers’ clothing and equipment from stores around Scotland. Last year it expanded its stores into the north of England and into Wales. The management team has ambitions to open stores throughout the UK and Ireland, with the ultimate aim of expanding into Western Europe within the next eight years. The board has met to discuss the best way of managing the expansion, and to consider a proposal to establish relatively autonomous divisions based on geographical areas so that eventually, for example, there will be a Golfstore France with its own divisional management team.

Explain to the directors the principal advantages of divisionalisation within the context of their business.

The directors of Bellcraft are due to meet to discuss a proposal to implement a standard costing system to control their manufacturing operations. One of the directors has been reading a book about management systems which contains a chapter about the drawbacks of standard costing systems. He has circulated a paper in advance of the meeting suggesting that the proposed system would be excessively expensive and bureaucratic. He says that standard costing systems fail to produce information on a sufficiently timely basis, so that variance investigation is bound to be ineffective. You are the management accountant of Bellcraft, and you are due to attend the directors’ meeting as an adviser

Required: make notes to take into the meeting which address the criticisms of standard costing in the director’s paper.

 

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