Exam 10: Management Control in Decentralized Organizations

In cases of constrained capacity, the opportunity cost is zero.

According to agency theory, employment contracts will trade off _____.

EVA usually uses after-tax numbers.

_____ is a measure of income or profit divided by the investment required to obtain that income or profit.

Performance-based rewards can be informal.

In designing accounting control systems, top managers must consider the system's impact on behavior desired by the organization.

The variable cost of Part X is $50 and the full cost of the part is $80.The part is produced in country A and transferred to a plant in country B.Country A has a 30% income tax rate.Country B has a 50% income tax rate and an import duty equal to 10% of the price of the item.Part X can be transferred at full cost or variable cost.Assume that Part X is priced at full cost.The income tax effect per unit in country B is_____.

When a division has idle production capacity, variable cost is the transfer price that leads to optimal decision making.

In all ROI calculations, invested capital should be measured as an average for the period under review.

ROI tells us how much a company's after-tax operating income exceeds what it is paying for capital.

The transfer price is revenue to the acquiring segment, and it is a cost to the segment producing the product or service.

Transfer prices are the amounts charged by one segment of an organization for a product or service that it supplies to an outside firm.

If using actual costs for cost-based transfer pricing, the supplying division lacks incentive to control its costs.

McCovey 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 is working at full capacity, the best transfer price from the viewpoint of the company as a whole would be _____.

Top managers who wish to encourage decentralization will often make sure that both production and purchasing division managers understand all the facts and then allow the managers to negotiate a transfer price.

Company's cost of capital x amount of investment

A full-cost or full-cost plus profit transfer price would potentially create dysfunctional behavior.

Increasing capital turnover is one of the advantages of implementing the JIT philosophy.

_____ is an approach used for establishing a market-based transfer price.

The asset section of the January 1, 20X7, balance sheet of Petticoat Company includes a machine which was acquired on January 1, 20X3.The machine's original cost was $500,000, and the estimated life was determined to be 10 years.The estimated residual value was zero, and the straight-line method of depreciation was chosen.If operating income before depreciation is $90,000, the rate of return on average net book value for 20X7 is _____.