Exam 12: Performance Evaluation and Decentralization

Several transfer pricing policies are used in practice. These transfer pricing policies include market price, cost-based transfer prices, and negotiated transfer prices.

Given the following information for the Reardon Division: Required:

MATCHING Select the term from below to match with the correct statement. a. centralization b. revenue center c. profit center d. cost center e. investment center f. decentralization -The manager of a(n) ___________ is evaluated on the basis of income.

Red Earth Company has two divisions, the Okla Division and the Homa Division. Last year, the Okla Division earned $66,000 using average operating assets of $550,000. Last year, the Homa Division earned $260,000 using average operating assets of $2,000,000. Minimum required rate of return for Red Earth is 9%. Now assume that the minimum required rate of return for Red Earth is 12%.

A ____________________ is a segment of the business whose manager is accountable for specific sets of activities.

_________________ is found by dividing sales by average operating assets.

The Engine Division provides engines for the Tractor Division of a company. The standard unit costs for Engine Division are: What is the transfer price based on full cost plus a markup of 30%?

Which of the following is not a disadvantage of the ROI performance measure?

Each month, the vacuum cleaner manufacturing cell has 800 hours of time available. During that time, the cell could have manufactured up to 2,400 vacuums; but only 1,600 vacuums were actually manufactured. Calculate the following:

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

The difference between realization and sacrifice defines

The Auto Division of Big Department Store had a net operating income of $560,000, a net asset base of $4,000,000, and a required rate of return of 12%. Sales for the period totaled $3,000,000. The residual income for the period is

Noble Company has two divisions, the Domestic Division and the International Division. Last year, the Domestic Division earned $360,000 using average operating assets of $1,440,000. Sales for the Domestic Division were $3,600,000. Last year, the International Division earned $560,000 using average operating assets of $2,800,000. Sales for the International Division were $7,000,000.

Castor Company had income of $10,000, average assets of $100,000 and sales of $40,000. What is Castor's ROI?

Figure 12-3. Grey Inc. has many divisions that are evaluated on the basis of ROI. One division, Centra, makes boxes. A second division, Mantra, makes chocolates and needs 80,000 boxes per year. Centra incurs the following costs for one box: Centra has capacity to make 700,000 boxes per year. Mantra currently buys its boxes from an outside supplier for $1.80 each (the same price that Centra receives). -Refer to Figure 12-3. Assume that Grey Inc. mandates that any transfers take place at full manufacturing cost. What would be the transfer price if Centra transferred boxes to Mantra?

The following information pertains to the three divisions of Marlow Company: What is the residual income for Division X?

The calculation of Economic Value Added is

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

MATCHING Select the term from below to match with the correct statement. a. centralization b. revenue center c. profit center d. cost center e. investment center f. decentralization -A(n) ___________ is a responsibility center in which a manager is responsible only for costs.

Which of the following is an absolute dollar measure rather than a percentage?