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Rendell Co. Case Analysis

Case 3-3: Rendell Company

Key Issue: The need for a change in the controller relationship.

From a Dotted Line approach to a Solid Line approach

Dotted Line: divisional controller reports to the divisional general manager. Some decisions(hiring, compensation) are to be be discussed with the corporate controller

Solid Line: divisional controller reports directly to the corporate controller.

Manufacturing company: 7 operating divisions, all responsible for the manufacturing andmarketing of a distinct product line. (Smallest: $50M Biggest $500M)

James Hodgkin: President Fred Bevins: Corporate Controller

Old controller organization

Corporate Control Organization is responsible for: a) financial accounting b) internal auditc) analysis of capital budget

Budget Control System were prepared by each division and submitted to top-management(little analysis)

Present controller organization

Hodgkin (controller at this time), thought it was essential that corporate control organizationplayed a more active role in establishing budgets and analysing performance

o Bevins worked the same way once he was named controller

Divisional Controllers reported to Divisional general managers

o Corporate controller were consulted when hiring new divisional controllers or increasingdivisional controllers salary

Budget and performance reports from each division is the responsibility of that divisionsgeneral manager (with the assistance of divisional controller)

Division general manager reports directly to the corporate controller

Bevins believed thats his relationship with divisional controllers was not close enough that

he could urge the development and use of new techniques as quickly as he wished.

He also believed that he wasnt getting adequate information on what is really happening in

each division and that divisional managers might have a better idea, rather than the generalmanagers.

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Bevins was interested in the controller organization of Martex

Strengths

Provides a training ground in general management

o General managers act as CEO of their own division

Allows GM to make better production and marketing decisions than headquarter might

Weaknesses

General managers may not meet goal congruence

o Would rather make decisions to make their own division look better instead of the bettergood of the company

o Ie. GM could choose to cut back on training to show better performance or to meet thegiven budget. However, this could affect the company long term if workers get injured

because they were not properly trained. The company will end up paying more than theoriginal training cost.

General manager will not provide completely objective report

Martex controller organization

The corporate controller reports directly to the president and has every divisional controllerreporting to him and other accounting, data processing, and analysis group

His responsibilities are to establish cost and profit estimates and standards and to ensure

these standards are attained

Division controllers are not involved in the preparation of their divisions profit and loss

statements.

Each division uses the same accounting policies, procedures and standards. (more unified

flow of information)

No divisional general manager

Rendells new controller organization

I suggest that Rendell adopts the Martex controller function.

The divisional controllers know more about the daily operation of his business unit than a

general manager would.

They will be able to give recommendations to the organizations controller however will not

be able to enforce them

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This allows for a more nonbiased information for management and requires the divisional

controller to become actively and requires the divisional controller to become activelyinvolved in the local decision making process.

Divisional controllers need to ensure that internal control practices conform to corporate

policy and procedure (which are the same for each division)

Additionally, they need to ensure that the financial information from their own division isaccurate

Business unit controllers need to act as a spy from head office.