Exam 10: Management Control in Decentralized Organizations

Campbell Company's records reveal the following: Division A Market price of finished part to outsiders \ 74 per unit Variable costs per part \ 50 per unit Division B Sale price of finished product per unit \ 105 per unit Variable costs: \begin{array} { l } \text {Division \mathrm{A}(1 part \( ) \) }&?\\ \text { Division B Processing}&27 \text { per unit } \\ \text {Division B Selling }&12 \text { per unit } \\\end{array} Division B wants to buy the part from Division A.The variable costs of Division B will be incurred whether it buys the part from Division A or from an outside supplier.Assume Division A is working at full capacity,and there is no excess capacity.Division B can buy the parts from an outside supplier at $70 per unit.What is the lowest transfer price per unit Division A should accept from Division B?

Julie Company's revenues for the year are $300 and average invested capital for the year is $240.Expenses are currently 50% of revenues.Julie Company's current return on investment is ________.

Possible definitions of invested capital for purposes of calculating return on investment include total assets and total stockholders' equity.

In a multinational setting,low transfer prices generally lead to low import duties.

What is the general rule for determining transfer prices on transferred products between segments of a company? The transfer price equals ________ plus ________.

The concentration of decision-making authority only at the highest levels of the organization is called ________.

The following information pertains to Garcia Company: Total assets \ 50,000 Net operating profit after taxes \ 10,000 Total current liabilities \ 10,000 Total expenses \ 60,000 Total liabilities \ 15,000 Total revenues \ 80,000 Invested capital is defined as total assets minus current liabilities.The after-tax cost of capital is 20%.What is the residual income?

From the view of the company as a whole,managers should accept investment projects that earn more than the ________.________ should not be used for investment decisions.

A transfer price exists when two segments of the same organization sell ________.

Dysfunctional decisions are decisions that conflict with organizational goals and objectives.

The following information pertains to a segment of the Moore Company.Invested capital is defined as total assets.The weighted average cost of capital is 10%.The ROI of the segment before the project is 20%.The ROI of the segment after the project is 18%.The manager is evaluated based on the segment's ROI.A project earning a ROI of 12% should be ________.

A full-cost transfer price can potentially create dysfunctional decisions.

Multinational companies use transfer prices to minimize worldwide income taxes,________ and ________.

The joint formulation by a manager and his or her superior of a set of goals and plans for achieving the goals for a forthcoming period is known as ________.

The following information is available for Pohler Company: Current assets \ 100,000 Current liabilities \ 75,000 Property, plant and Long-term liabilities 100,000 equipment 50,000 Stockholders'equity 125,000 Other assets 150,000 Total liabilities and Total assets \ 300,000 stockholders'equity \ 300,000 Invested capital is defined as total assets.Before-tax operating profit is $175,000.After-tax operating profit is $125,000.The after-tax cost of capital is 10%.What is economic profit?

Return on sales can be computed by multiplying return on investment by the capital turnover.

Sterling Company's revenues are $300 for the year.Average invested capital for the year is $240.Expenses are currently 70% of revenues.If Sterling Company can reduce its average invested capital by 25%,return on investment will be ________.

The costs of accumulating and processing information frequently decline under decentralization.

U.S.multinational companies must follow the Internal Revenue Code when setting transfer prices.

Which of the following adjustments to after-tax operating income is used to approximate cash income for EVA?