ntability at each level would be greatly increased. The Executive Vice President of Product Management, for example, would have overall responsibility for the three cost centers in his control, Product Development, Marketing and Sales, with each of those vice-presidents responsible for making their cost centers efficient. Similarly, Manufacturing, Engineering and Quality Assurance would also be designated as cost centers, with their current vice-presidents responsible for their effective operation.
Costs that are directly controllable by the manager of each cost center are allocated to that cost center. Conflict is bound to arise, but careful analysis can result in fair allocation. For example, our sales department may demand a rush order for a particular customer, but the manufacturing manager may respond that such an order would disrupt his production and increase his costs. Using activity-based accounting, the costs associated wi
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