FSE2202 BUSINESS MANAGEMENT CHAPTER 8 STUDY GUIDE
EXAM QUESTIONS AND ANSWERS WITH COMPLETE
SOLUTIONS
Define an economy of scale
The situation in which companies can reduce their production costs if they can purchase
raw materials in bulk; the average cost of goods goes down as production levels
increase
List all of Fayol's principles
•Unity of command
•Hierarchy of authority
•Division of labor
•Subordination of individual interests
•Authority
•Degree of centralization
•Clear communication channels
•Order
•Equity
•Esprit de corps
Under Fayol's concepts each employee reported to how many bosses?
One
Define Hierarchy
, A system in which one person is at the top of the organization and there is a ranked or
sequential ordering form the top down of managers who are responsible to that person
Define chain of command
The line of authority that moves from the top of a hierarchy to the lowest level
Define bureaucracy
An organization with many layers of managers who set rules and regulations and
oversee all decisions
Define centralized authority
An organization structure in which decision making authority is maintained at the top
level of management
Define decentralized authority
An organization structure on which decision making authority is delegated to lower-level
managers more familiar with local conditions than headquarters management could be
Define span of control
The optimal number of subordinates a manager supervises or should supervise
What are advantages and disadvantages of centralized authority?
•Advantages
-Greater top-management control
-More efficiency
-Simpler distribution system
-Stronger brand/corporate image
•Disadvantages
-Less responsiveness to customers
EXAM QUESTIONS AND ANSWERS WITH COMPLETE
SOLUTIONS
Define an economy of scale
The situation in which companies can reduce their production costs if they can purchase
raw materials in bulk; the average cost of goods goes down as production levels
increase
List all of Fayol's principles
•Unity of command
•Hierarchy of authority
•Division of labor
•Subordination of individual interests
•Authority
•Degree of centralization
•Clear communication channels
•Order
•Equity
•Esprit de corps
Under Fayol's concepts each employee reported to how many bosses?
One
Define Hierarchy
, A system in which one person is at the top of the organization and there is a ranked or
sequential ordering form the top down of managers who are responsible to that person
Define chain of command
The line of authority that moves from the top of a hierarchy to the lowest level
Define bureaucracy
An organization with many layers of managers who set rules and regulations and
oversee all decisions
Define centralized authority
An organization structure in which decision making authority is maintained at the top
level of management
Define decentralized authority
An organization structure on which decision making authority is delegated to lower-level
managers more familiar with local conditions than headquarters management could be
Define span of control
The optimal number of subordinates a manager supervises or should supervise
What are advantages and disadvantages of centralized authority?
•Advantages
-Greater top-management control
-More efficiency
-Simpler distribution system
-Stronger brand/corporate image
•Disadvantages
-Less responsiveness to customers
