Exam 11: Setting Performance Expectations in Large, Complex Organizations

One of the benefits of decentralized organizations is their ability to respond quickly to new business opportunities and changing business conditions.

As the interest rate or discount rate falls, the present value of a stream of future cash flows will:

Cotton Company has two service departments and three operating departments. In allocating service department costs to the operating departments, which of the following three methods (direct, step-down, reciprocal) will result in the same amount of service department costs being allocated to each operating department, regardless of the order in which the service department costs are allocated?

Capital budgeting decisions are typically carried out in which type of responsibility center?

The most objective measure of economic value is:

The balanced scorecard provides an action plan for achieving competitive success by focusing management attention on critical success factors. Which one of the following is not one of the competitive success factors commonly focused upon in the balanced scorecard?

A company has two service departments, S1 and S2, and two production departments, P1 and P2. Departmental data for January is shown below. Required: What are the total allocated service department costs to P1 and P2 if the company uses the reciprocal method of allocating its service department costs?

A given stream of cash flows will have a larger present value at a discount rate of 8% than it will at a discount rate of 12%.

P & M Corporation manufactures products exclusively for military clients. Due to security concerns, each product is manufactured entirely within its own department. Department X specializes in communications equipment and Department Y in armor plating. Both production departments are supported by the corporation's power-generating department (Department A) and its equipment maintenance department (Department B). The work supplied by support Department A is measured in kilowatt-hours of electricity, and that in Department B is measured in labor hours. Departments A and B also consume service from one another. -Of the following approaches to allocating the costs of the power and equipment departments, which ignores the costs of the work that the support departments consume from one another?

A drawback to the use of residual income when comparing the performance of corporate divisions is that:

Robert Gilligan is the manager of the golf cart production division of the John Fleer Company. The golf cart production division is recognized in the company's organization as a cost center. Of the following budgetary items, which would not be among Mr. Gilligan's responsibilities?

Which of the following is an incorrect description of transfer pricing?

KHD Industries includes, among others, the following measures in its integrated performance measurement system: operating income, cash flow from operations, customer satisfaction, customer retention, defect rate, number of suppliers, employee retention, and number of patents. KHD Industries seems to have adopted:

Morrison's Plastics Division, a profit center, sells its products to external customers as well as to other internal profit centers. Which of the following circumstances would justify the Plastics Division selling a product internally to another profit center at a price that is below the market-based transfer price?

The direct method of service department cost allocation fully accounts for the costs of support that service departments provide to one another.

One reason for allocating the costs of service departments to operating departments is to provide an incentive for those service departments to operate efficiently.

Before becoming a publicly traded corporation, Groupon, Inc., relied on a financial metric it named "adjusted consolidated segment operating income" (ASCOI) to assess performance. ASCOI measured the company's operating income excluding several major expenses, including marketing and acquisition-related costs. One reason Groupon relied on ASCOI to assess performance may have been to:

Steif Corporation has two investment projects it is considering. Financial capital is scarce, so Steif wants to choose the project that promises the highest returns to the company and its shareholders. The company's weighted average cost of capital is 14%. The projected cash flows from both projects are given below. Required: a) Calculate the present value of each of the projects using the 14% weighted average cost of capital as the discount rate. b) Which, if either, of the projects should the company choose? Why?

The John Deere Corporation is organized into three divisions: agriculture and turf; construction and forestry; and finance. Each of these divisions sells unique products and services in distinct markets, and each has its own goals and objectives. These three divisions could be most accurately described as:

P & M Corporation manufactures products exclusively for military clients. Due to security concerns, each product is manufactured entirely within its own department. Department X specializes in communications equipment and Department Y in armor plating. Both production departments are supported by the corporation's power-generating department (Department A) and its equipment maintenance department (Department B). The work supplied by support Department A is measured in kilowatt-hours of electricity, and that in Department B is measured in labor hours. Departments A and B also consume service from one another. The work done by Departments A and B is summarized in the table below. -The costs of power and maintenance for the coming year are budgeted to be $200,000 and $80,000, respectively. If P & M chooses to use the reciprocal method, which of the following equations would be used to model the power department's total cost?