Exam 10: Management Control in Decentralized Organizations

The following information is available for the Bumbling Company: Sales \ 250,000 Invested capital 156,250 ROI 20\% The net income is _____.

Frazier Company's revenues are $300 on invested capital of $240.Expenses are currently 84% of sales.If Frazier Company can reduce its expenses to 70% of sales, return on investment will be _____.

The asset section of the January 1, 20X9, balance sheet of Junction Company includes a machine which was acquired on January 1, 20X5.The machine's original cost was $500,000, and the estimated life was determined to be 10 years.The estimated economic profit was zero, and the straight-line method of depreciation was chosen.If operating income before depreciation is $95,000, the rate of return on gross book value for 20X9 is _____.

The Table and Chair Divisions are part of the same company.Currently the Chair Division buys a part from Table for $384.The Table Division wants to increase the price of the part it sells to Chair by $96 to $480.The manager of Chair has stated that it cannot afford to go that high, as it will decrease the division's profit to near zero.Chair can buy the part from an outside supplier for $448.The cost data for the Table Division is as follows: Direct materials \ 136 Direct labor 200 Variable overhead 40 Fixed overhead 42 If Table ceases to produce the parts for Chair, it will be able to avoid one?third of the fixed manufacturing overhead.The Table Division has excess capacity but no alternative uses for its facilities._____ is the minimum transfer price that should be charged.

Possible definitions of invested capital include total assets employed and stockholders' equity.

Historical costs may be subjective.

_____ is the formal and informal performance?based reward that enhances managerial effort toward organizational goals.

A firm is a good candidate for decentralization if _____.

_____ would not increase return on investment.

Anne Company's records reveal the following: Division A Market price of finished part to outsiders \ 75 Variable costs per part Contribution margin per part Total contribution for 10,000 parts \ 240,000 Division B Sales price of finished product Variable costs: \1 05 Division A 1 part @ \5 1) Division B \5 1 Processing \2 7 Selling 12 39 -90 Contribution margin per unit \1 5 Total contribution for 10,000 units \1 50,000 The variable costs of Division B will be incurred whether it buys from Division A or from an outside supplier.The highest price that Division B would want to pay to Division A for the parts would be _____.

If there is a competitive market for the product or service being transferred internally, using the cost-based price as a transfer price will generally lead to the desired goal congruence and managerial effort.

The following information pertains to Robert Company: Total assets \ 50,000 Total current liabilities 10,000 Total expenses 60,000 Total liabilities 15,000 Total revenues 80,000 If invested capital is defined as total assets minus current liabilities, the residual income at an imputed interest rate of 20% is _____.

_____ is the original cost of an asset less any accumulated depreciation.

The more subjective the measures of performance, the more likely managers will exert effort.

Steven Company's records reveal the following: Division A Market price of finished part to outsiders \ 75 Variable costs per part Contribution margin per part Total contribution for 10,000 parts \ 240,000 Division B Sales price of finished product Variable costs: \1 05 Division A 1 part @ \5 1) Division B \5 1 Processing \2 7 Selling 12 39 -90 Contribution margin per unit \1 5 Total contribution for 10,000 units \1 50,000 The variable costs of Division B will be incurred whether it buys from Division A or from an outside supplier.If Division A wants to transfer the parts to Division B for $81, the manager of Division B would _____.

The increasing sophistication of telecommunications aids decentralization.

All of the following should be considered when determining transfer pricing except _____.

The delegation of freedom to make decisions

Accounting measures provide relatively subjective evaluations of performance.

North Division sells cloth internally to South Division.South Division uses the cloth to produce inexpensive curtains sold at discount stores.North Division incurs costs of $1.50 per pound, while South Division incurs additional costs of $4.80 per pound.The product is sold to external customers for $8.00 per set of curtains.Identify which of the following formulas correctly reflects the company's operating income.