Exam 12: Performance Evaluation and Decentralization

The net income reduced by the total annual cost of capital is equal to the economic value added.

Decentralization is frequently chosen by companies because it

Shandling Company had operating income of $70,000, sales of $218,750, and turnover of 0.5. What is Shandling's ROI?

-Refer to Figure 12-5. What are the sales for Division B?

Transfer pricing is a complex issue.

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

If the operating asset turnover increased by 50% and the margin increased by 50%, the ROI would increase by

Figure 12-3 Direct materials \ 0.23 Direct labor \ 0.20 Variable overhead \ 0.95 Fixed overhead \ 1.32 Total \ 2.70 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 are the total cost savings for LeatherStuff?

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)

Figure 12-3Grey 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: Direct materials \ 0.35 Direct labor \ 0.60 Variable overhead \ 0.40 Fixed overhead \ 0.13 Total \ 1.48 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. allows division managers to negotiate transfer price. Centra is producing 600,000 boxes. If Centra and Mantra agree to transfer boxes, what is the ceiling of the bargaining range and which division sets it?

If the National Division of American Products Company had a turnover ratio of 4.2 and a margin of 0.10, the return on investment would be

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

Select the term from below to match with the correct statement. -The manager of a(n) ___________ is evaluated on the basis of income.

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

The direct comparison of the performance of two different investment centers is difficult using residual income because residual income is an absolute measure.

A positive result that stems from the use of return on investment (ROI) is that it encourages managers to focus on

An ______________________ is when a manager is responsible for revenues, costs and investments.

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

A _________________ is the price charged for a component by the selling division to the buying division of the same company.

Pautner Company had the following historical accounting data per unit: The units are normally transferred internally from Division A to Division B. The units also may be sold externally for $210 per unit. The minimum profit level accepted by the company is a markup of 30%. There were no beginning or ending inventories. What would be the transfer price if Division X uses full cost plus markup?