Exam 12: Performance Evaluation and Decentralization

Paige Inc. has a division that makes paint and another division that constructs subdivisions. The paint division incurs the following costs for one gallon of paint: The Paint Division can make 1,000,000 gallons per year, and expects to produce 1,000,000 gallons next year. The construction division currently buys 200,000 gallons of paint from an outside supplier for $5.20 per gallon (the same price that the Paint Division receives).

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

Paige Inc. has a division that makes paint and another division that constructs subdivision houses. The paint division incurs the following costs for one gallon of paint: The Paint Division can make 1,000,000 gallons per year, and is at capacity. The Construction Division currently buys its paint from an outside supplier for $5.20 per gallon (the same price that the Paint Division receives).

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:

At the beginning of the year, the value of operating assets was $263,000. At the end of the year, the value of operating assets was $336,000. Monfett Manufacturing requires a minimum rate of return of 15%. Total capital employed equal $350,000 and actual cost of capital is 6%. -Refer to Figure 12-7. Calculate the following: (Carry computations out to two decimal places.)

Sales \ 185,000 Operating income \ 60,000 Operating assets \ 375,000 The manager can invest in an additional project that would require $40,000 investment in additional assets and would generate $6,000 of additional income. The company's minimum rate of return is 14%. -Refer to Figure 12-2. Which of the following statements is true?

A(n) ________________ is when a manager is responsible only for sales.

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.

Which of the following is a reason for decentralization?

______________________ occurs whenever managers receive information about the effectiveness of strategy implementation as well as the validity of the assumptions underlying the strategy.

When a manager is responsible for only costs it is known as a(n) _______________.

The Glass Division of a company makes glass vases which have the following unit costs: The Florist Division of the company sells cut flowers and uses the glass vases. The Florist Division uses 10,000 vases per year and currently buys them from an outside supplier for $4 each. The Glass Division produces and sells 100,000 glass vases per year and sells them on the outside market for $4 each. Vases sold outside incur the sales commission; this commission would not be paid on internal transfers. The Glass Division and the Florist Division managers just met and agreed on a transfer price of $3.75 per vase. Is this a good idea for each division? Explain.

The pager manufacturing cell has 1,200 hours of time available per quarter. The cell could make 7,200 pagers but only made 6,000 during that time. Calculate the following:

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

________________ is the difference between realization and sacrifice, where realization is what the customer receives and sacrifices is what is given up in return.

The number of units of output that can be produced in a given period of time is called

Using EVA to calculate residual income, the dollar cost of capital employed is the actual percentage cost of capital multiplied by the total capital employed.

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 Quinn allows negotiated transfer pricing. What is the floor of the bargaining range and which division sets it?

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 is the total benefit for Style?

In _______________ decision making, decisions are made at the very top level, and lower-level managers are charged with implementing these decisions.