Chapter 1, Problem 32P

Urban Elite Apparel designs women’s apparel and sells it through retail outlets across the country. All of the company’s clothing lines are manufactured by contract manufacturers around the world. A division manager is responsible for each of the company’s retail divisions. Each division’s controller, assigned by the corporate controller’s office, manages the division’s accounting system and provides analysis of financial information for the division manager. The division manager evaluates the performance of the division controller and makes recommendations for salary increases and promotions. However, the final responsibility for promotion evaluation and salary increases rests with the corporate controller.

Each of Urban Elite Apparel’s divisions is responsible for product design, sales, pricing, operating expenses, and profit. However, corporate management exercises tight control over divisional financial operations. For example, all capital expenditure above a modest amount must be approved by corporate management. The method of financial reporting from the division to corporate headquarters provides further evidence of the degree of financial control. The division manager and the division controller submit to corporate headquarters separate and independent commentary on the financial results of the division. Corporate management states that the division controller is there to provide an independent view of the division’s operations, not as a spy.

Required:

1. 1. Discuss the arrangements for line and staff reporting in Urban Elite Apparel.
2. 2. The division manager for Urban Elite Apparel has a “dual reporting” responsibility. The controller is responsible both to the division manager, who makes recommendations on salary and promotion, and to the corporate controller, who has the final say in such matters.
   1. a.      Identify and discuss the factors that make the division controller’s role difficult in this type of situation.
   2. b.      Discuss the effect of the dual reporting relationship on the motivation of the divisional controller.