Exam 10: Management Control in Decentralized Organizations

To calculate economic value added,several adjustments are made to after tax operating profit that include ________ and ________.

The following information pertains to the Vertigo Company: Total assets \ 150,000 Total current liabilities \ 110,000 Total expenses \ 70,000 Total liabilities \ 115,000 Total revenues \ 80,000 Return on sales equals ________.

The West and East Divisions are divisions in the same company.Currently the East Division buys a part from West Division for $384 per unit.The West Division wants to increase the price of the part it sells to East Division by $96 to $480.The manager of the East Division has stated that he cannot pay that much insofar as the division's profit goes below zero.The manager of the East Division can buy the part from an outside supplier for $440 per unit.The cost data pertaining to the part is supplied by the West Division: Direct materials \ 136 Direct labor 200 Variable overhead 40 Fixed overhead 42 If West Division does not produce the parts for the East Division,it will be able to avoid one-third of the fixed manufacturing overhead costs.The West Division has excess capacity but no alternative uses for the facilities.From the standpoint of the company as a whole,should the East Division buy the part from the West Division or the outside supplier?

Increasing capital turnover is one of the advantages of implementing the JIT philosophy.

EVA uses after-tax numbers for operating income.

Managers evaluated using net book value for plant assets will tend to replace assets sooner than managers evaluated using gross book value.

In agency theory,risk to the manager is defined as ________.

Capital turnover can be increased by decreasing investment.

Division West does not have excess capacity to produce Product XX.The division can sell Product XX for $10 per unit outside the company.Variable costs are $6 per unit.Division East wants to purchase Product XX from Division West to use in Product ZZ.The selling price of Product ZZ is $25 per unit and variable costs to finish the product after the transfer are $12 per unit.An outside supplier will sell Product XX for $11 per unit.What is the maximum price Division East will pay for Product XX?

The time and effort spent negotiating a transfer price between a company's divisions adds nothing directly to the profits of a company.

When a company uses economic profit as a performance metric,managers have an incentive to invest only in projects ________.

The variable cost of Part X is $50 per unit and the full cost of the part is $80 per unit.The part is produced in Portugal and transferred to a plant in the United States.Portugal has a 10% income tax rate.The United States has a 50% income tax rate and an import duty equal to 10% of the price of the item.Part X can be transferred at full cost or variable cost.Assume Part X is transferred at full cost.By using full cost instead of variable cost for the transfer price,the income tax effect per unit in Portugal is ________.

The following information pertains to Arnez Company: Total assets \ 150,000 Net operating profit after taxes \ 12,000 Total current liabilities \ 110,000 Total expenses \ 160,000 Total liabilities \ 115,000 Total revenues \ 180,000 Invested capital is defined as total assets minus current liabilities.The after-tax cost of capital is 10%.What is the economic profit?

A decrease in either capital turnover or return on sales,without changing the other,will also ________ the ________.

Decentralization may increase a firm's costs because ________.

The rate of return on net book value for equipment decreases as the equipment ages.

Bernice Company's records reveal the following: Division X Market price of finished component to outsiders \ 32 per unit Variable costs per component \ 24 per unit Division Y Sale price of finished product \ 42 per unit Variable costs: Division X(1 component ) ? Division Y Assembly 9 per unit Division Y Packaging 4 per unit Division Y wants to buy the component from Division X.The variable costs of Division Y will be incurred whether it buys the component from Division X or from an outside supplier.Assume Division X has excess capacity.Division Y can buy the component from an outside supplier for $32 per unit.What is the lowest transfer price per unit at which Division X would be willing to sell to Division Y?

Return on investment equals return on sales divided by capital turnover.

What does a decentralized company expect from its transfer pricing system?

When measuring invested capital for purposes of calculating return on investment,managers in practice predominantly use ________.