Exam 12: Performance Evaluation and Decentralization

A segment of Mega Inc., manufactures and sells blankets. The various models of blankets are produced in a single factory using stable technology. They are sold by the sales department, also located in the factory. The segment is most probably accounted for as a(n)

When the selling division can sell and the buying division can buy externally at the market price, the company as a whole will be in the same position whether or not a market price transfer takes place internally.

A production department within the factory, such as assembly, is an example of a profit center.

Turnover is calculated as

Figure 12-4. Quinn Inc. has a number of divisions. One division, Style, makes zippers that are used in the manufacture of boots. Another division, LeatherStuff, makes boots that use the zippers and needs 90,000 zippers per year. Style incurs the following costs for one zipper: Quinn has capacity to make 950,000 zippers per year, but due to a soft market, only plans to produce and sell 620,000 zippers next year. LeatherStuff currently buys zippers from an outside supplier for $3.50 each (the same price that Style receives). -Refer to Figure 12-4. Assume that Style and LeatherStuff have agreed on a transfer price of $3.25. What is the total benefit for Quinn, Inc.?

Explain the differences between centralized and decentralized decision making. Also list some of the reasons why a company would choose to decentralize.

Figure 12-1. Dempsey Company provided the following information for last year: -Refer to Figure 12-1. Dempsey's turnover ratio for last year was

Marshal Company has the following data for one of its manufacturing plants: Maximum units produced in a quarter = 425,000 units Actual units produced in a quarter = 354,500 units Productive hours in one quarter = 35,450 hours Required:

The manager of a division is displeased with the ROI of the division. One step that would increase ROI (holding everything else constant) is

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

Figure 12-1. Dempsey Company provided the following information for last year: -Refer to Figure 12-1. Calculate Dempsey's margin for last year, rounding to two decimal places.

Division A produces a component and wants to sell it to Division B. The transfer price is

In negotiated transfer pricing, the buying division sets the ceiling (maximum possible transfer price) for the bargaining range.

If the selling division is operating at less than full capacity, the floor of the bargaining range would most probably set at

Typically, investment centers are evaluated on the basis of __________________.

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 12-8 Bostonian Inc. has a number of divisions, including Delta Division and ListenNow Division. The ListenNow Division owns and operates a line of MP3 players. Each year the ListenNow Division purchases component AZ in order to manufacture the MP3 players. Currently it purchases this component from an outside supplier for $6.50 per component. The manager of the Delta Division has approached the manager of the ListenNow Division about selling component AZ to the ListenNow Division. The full product cost of component AZ is $3.10. The Delta Division can sell all of the components AZ it makes to outside companies for $6.50. The ListenNow Division needs 18,000 component AZs per year; the Delta Division can make up to 60,000 components per year. -Refer to Figure 12-8.

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

Economic value added is just a specific way of calculating residual income.

The Balanced Scorecard perspective that defines the capabilities than an organization needs to create long-term growth and improvement is the ____ perspective.