Exam 10: Management Control in Decentralized Organizations

The variable cost of Part X is $50 and the full cost of the part is $80. The part is produced in country Z 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 Z is:

EVA usually uses after- tax numbers.

A frequent criterion for asset allocation is avoidability.

The following information pertains to Polk Company: Property, plant and Currentassets \ 100,000 Currentliabilities \ 75,000 equipment 150,000 Long term liabilities 100,000 Constructioninprogress 50,000 Stockholders'equity 125,000 Total assets \3 00,000 Total equities \3 00,000 Invested capital is _ if it is defined as stockholders' equity.

Revenue divided by invested capital

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:

Residual income is defined as:

Reed Company records reveal the following: The variable costs of Division Y will be incurred whether it buys from Division X or from an outside supplier. If Division X wants to transfer the components to Division Y for $34 each, the manager of Division Y would:

Companies must pay managers more if the managers bear more risk, assuming the managers are risk averse.

The fact that is not a disadvantage of transferring items at cost.

The historical- cost system may be superior for the nonroutine evaluation of performance.

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

Capital turnover = revenue / invested capital

Division Y sells soybean paste internally to Division Z, which, in turn, produces soybean burgers that sell for $5 per pound. Division Y incurs costs of $0.75 per pound, while Division Z incurs additional costs of $2.50 per pound. Identify which of the following formulas correctly reflects the company's operating income.

Capital turnover can be increased by decreasing investment.

In measuring income, either the net book value or the gross book value can be used.

Sweater Division of Clothes, Inc., manufactures sweaters. The buttons used in production are presently purchased from an outside supplier at a cost of $4.50 for a set of twelve buttons. A division of Clothes, Inc., called the Button Division, has just begun producing a similar button which can be used by the Sweater Division. Current per unit cost data for the button produced by the Button Division are as follows: Directmaterial \ 1.30 Directlabor 90 Variablemanufacturingoverhead .35 Fixed manufacturingoverhead Variablesellingexpenses Fixed sellingexpenses .45 Variable selling expenses would not be incurred on inside transfers. Required: a. What is the minimum transfer price that the Button Division should charge the Sweater Division for each set of buttons? b. What is the maximum transfer price that the Sweater Division should be willing to pay for each set of buttons?

Opportunity cost is the minimum contribution to profit that the selling segment forgoes by transferring the item internally.

A measure of income or profit divided by the investment required to obtain that income or profit

Outlay cost + opportunity cost