Exam 12: Performance Evaluation in Decentralized Organizations

Decentralization worsens the problem of divergence between individual and organizational goals by preventing lower-level managers from preparing to move to upper-level positions.

Setting effective transfer prices is relatively simply because division managers' strategic and economic considerations for the company as a whole are the same.

In an inter-company transfer, as long as the maximum price the buying division is willing to pay is higher than the minimum price the selling division is willing to accept, both divisions will agree to the internal transfer at any price between these two amounts.

Which of the following does not describe Kaizen? a. Encourages and rewards employees who constantly seek and suggest improvements to activities and business processes. B) Is a philosophy of continuous improvement. C) Involves comparing the effectiveness and efficiency of various activities and business processes in a firm against the best practices in the industry. D) None of the above statements describe Kaizen. E) All of the above describe Kaizen.

Which of the following is not an example of a cost center?

Ensuring smooth succession is important for the survival of any company.

Which of the following is not a cost of decentralization?

When intra-company transfers occur, a legally recognized sales takes place even though the divisions are part of the same company.

The minimum price that the selling division wants from an inter-company transfer is the cost of the transfer plus the opportunity cost of the transfer.

Which of the following transfer price approaches is most appropriate for a short-term problem in which the selling division has excess capacity? a. Variable cost-based transfer prices. B) Full cost-based transfer prices. C) Market-based transfer prices. D) Negotiated transfer prices. E) None of the above.

Normally, we exclude interest and taxes from the calculation of an investment center's profit results from its operations because profit center managers usually do not influence financial or tax-related decisions.

The Allentown Company reported operating income of $25,000 for 2009. If average operating assets for the year were $80,000 and the company had a required return of 12% the company's residual income was: a. $28,000 B) $22,000 C) $15,400 D) $6,600

The Hoboken Company has two divisions, North and South. In July, contribution margin for North was $126,000 and sales in the South division were $375,000 with a contribution margin ratio of 40%. Traceable fixed costs for the divisions totaled $101,000. If net operating income was $69,000, then total fixed costs must have been: a. $106,000 B) $207,000 C) $282,000 D) $170,000

In 2009 the Porter Company reported the following information: The company's required rate of return was: a. 11.3% B) 33.3% C) 15% D) 29%

When measuring average operating assets, depreciable fixed assets may be included at any value except: a. Gross book value. B) Net book value. C) Current replacement value. D) Original cost less estimated salvage.

The major criticism against ROI is that it is not an effective summary measure of business profitability.

Organizations use monitoring, performance evaluation, and incentive schemes to manage the cost of delegating decisions.

Which of the following is not an example of a profit center?

In 2009 the Yankee Company had average operating assets of $200,000. If the company reported a return on investment of 50% then net operating income for 2009 must have been: a. $100,000 B) $50,000 C) $400,000 D) $200,000

Which of the following is a type of decision a regional manager would make?