Explain the advantages of using Value Added Statements (VAS) for interdivision for comparisons in decentralized firm.


Advantages of Value added Statement
(i) Managers might be in a better position to control their organization‟s own inputs than the cost or usage efficiency of purchased material and services. If this is so, value added statements focus attention on what managers can do something about. They would also reflect the quality of such management‟s effort.

(ii) Value added statements also focus attention on how the benefits are shared out, and in particular: –

• Whether the employees are getting paid too much for what they are doing. If the value added per unit of labour is declining, management will be made aware of the need to keep labour costs under control. On the other hand, an improving value added per shilling of labour cost would suggest that there is some scope for rewarding employees more highly.
• Whether enough funds are being returned in the business (depreciation plus retained profits) to provide for asset replacement and internally –funded growth.

(iii) In organizations where the material cost content is a high proportion on total costs, the total profit will be influenced by changes in material prices (largely outside management control) and possibly also by occasional stock losses or profits when material prices alter value added statements, by taking out material costs as a separate item, allow alterations to be directed at activities within management‟s control.
(iv) Value added in relations to labour effort and labour costs provides excellent measures of productivity, and so far comprising the relative productivity of two or more divisions.

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