Exam 12: Performance Evaluation and Decentralization

Figure 12-3. Grey Inc.has many divisions that are evaluated on the basis of ROI.One division,Centra,makes boxes.A second division,Mantra,makes chocolates and needs 80,000 boxes per year.Centra incurs the following costs for one box: Centra has capacity to make 700,000 boxes per year.Mantra currently buys its boxes from an outside supplier for $1.80 each (the same price that Centra receives). Refer to Figure 12-3.Assume that Grey Inc.allows division managers to negotiate transfer price.Alpha is producing 700,000 boxes.If Centra and Mantra agree to transfer boxes,what is the floor of the bargaining range and which division sets it?

A positive result that stems from the use of return on investment (ROI)is that it encourages managers to focus on

Last night,Shirley worked on her accounting homework for one and one half hours.During that time,she completed 6 problems.What is the velocity in problems per hour?

Porter Company makes children's board games.One popular game requires the following amounts of time: processing - 2 hours; waiting - 6 hours; moving - 4 hours.The Manufacturing Cycle Efficiency (MCE)for Porter Company is

In terms of operating income for the company as a whole,the transfer price set by the buying and selling divisions nets out.

Figure 12-7 Monfett Manufacturing earned operating income last year as shown in the following income statement: At the beginning of the year,the value of operating assets was $263,000.At the end of the year,the value of operating assets was $336,000.Monfett Manufacturing requires a minimum rate of return of 15%.Total capital employed equal $350,000 and actual cost of capital is 6%. Refer to Figure 12-7.Calculate the following: (Carry computations out to two decimal places.)

Figure 12-5. The following information pertains to the three divisions of Yang Company: Refer to Figure 12-5.What is the turnover for Division C?

If there is a competitive outside market for the transferred product,then the best transfer price is the

The Glass Division of a company makes glass vases which have the following unit costs: The Florist Division of the company sells cut flowers and uses the glass vases.The Florist Division uses 10,000 vases per year and currently buys them from an outside supplier for $4 each.The Glass Division produces and sells 100,000 glass vases per year and sells them on the outside market for $4 each.Vases sold outside incur the sales commission; this commission would not be paid on internal transfers.The Glass Division and the Florist Division managers just met and agreed on a transfer price of $3.75 per vase.Is this a good idea for each division? Explain.

In _______________ decision making,decisions are made at the very top level,and lower-level managers are charged with implementing these decisions.

A responsibility center in which a manager is responsible only for sales is a(n)

The selling division would never agree to a transfer price below its full manufacturing cost.

Given the following information for the Reardon Division: Required:

The strategic management system that translates an organization's mission and strategy into operational objectives and performance measures is

The number of units of output that can be produced in a given period of time is called

The Dear Division of Zimmer Company sells all of its output to the Finishing Division of the company.The only product of the Dear Division is chair legs that are used by the Finishing Division.The retail price of the legs is $20 per leg.Each chair completed by the Finishing Division requires four legs.Production quantity and cost data for 2011 are as follows: Required: Compute the transfer price for a chair leg using:

In calculating residual income,the minimum rate of return is set by top management and is the same as the hurdle rate used for return on investment.

Figure 12-3. Grey Inc.has many divisions that are evaluated on the basis of ROI.One division,Centra,makes boxes.A second division,Mantra,makes chocolates and needs 80,000 boxes per year.Centra incurs the following costs for one box: Centra has capacity to make 700,000 boxes per year.Mantra currently buys its boxes from an outside supplier for $1.80 each (the same price that Centra receives). Refer to Figure 12-3.Assume that Grey Inc.mandates that any transfers take place at full manufacturing cost.What would be the transfer price if Centra transferred boxes to Mantra?

Decentralization is usually achieved by creating units called divisions.

A _________________ is the price charged for a component by the selling division to the buying division of the same company.