Exam 12: Performance Evaluation and Decentralization

Decentralization usually is achieved by creating units called ___________.

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 ceiling of the bargaining range and which division sets it?

Figure 12-6 The First National Bank has a mortgage loan office with conversion cost of $73,950 per month. There are five employees who each work 170 hours per month. Last month, 1,020 loan applications were processed, but the staff believes that system improvements could lead to the processing of as many as 1,700 per month. -Refer to Figure 12-6. Calculate the following:

Return on investment (ROI) can be calculated by multiplying margin times turnover.

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

Select the appropriate definition for each of the items listed below. -The dollar difference between operating income and minimum required return on a company's operating assets.

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 700,000 boxes. If Centra and Mantra agree to transfer boxes, what is the floor of the bargaining range and which division sets it?

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

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

In calculating residual income, the variable set by top management is called the

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

Divisions in a decentralized company can be created along which of the following lines?

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. Although the Delta Division has been operating at capacity (60,000 components per year), it expects to produce and sell only 45,000 components for $6.50 each next year. The Delta Division incurs variable costs of $1.50 per component. The company policy is that all transfer prices are negotiated by the divisions involved. Required: A. What is the maximum transfer price? Which division sets it? B. What is the minimum transfer price? Which division sets it? C. Suppose that the two divisions agree on a transfer price of $5.75. What is the change in operating income for the Delta Division? For the ListenNow Division? For Bostonian Inc. as a whole?

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 floor of the bargaining range and which division sets it?

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%.

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

The price charged for the transferred good affects the costs of the buying division and the revenues of the selling division.

The performance measure that uses after-tax operating income and the actual cost of capital employed is

Select the appropriate definition for each of the items listed below. -The ratio of operating income to sales.

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