Exam 10: Management Control in Decentralized Organizations

A management by objectives approach uses responsibility center budgets.

The management control system should be designed to achieve the best possible alignment between ________ and ________.

The proponents of gross book value for purposes of calculating return on investment maintain that it facilitates comparisons between years and between plants or divisions.

Historical cost is widely used for asset valuation in calculating return on investment because ________.

If there is a competitive market for the product being transferred internally,using the ________ as the transfer price will lead to ________.

In return on investment calculations,we should measure invested capital ________ because ________.

Decentralization is most successful when an organization's segments are relatively independent of one another.

According to agency theory,employment contracts will balance three factors that include risk,incentive and the cost of measuring performance.

Performance-based rewards can be monetary or nonmonetary.

Segment autonomy means that the activities of segment managers are directed by top managers.

The following information pertains to Kumperor Company: Average total assets \ 100,000 Total current liabilities \ 30,000 Total expenses \ 60,000 Total liabilities \ 35,000 Total revenues \ 80,000 Invested capital is defined as total assets.What is the return on investment?

Transfer prices are ________.

Hudson Company has two divisions.The following information is available: North Division South Division Revenue for year \ 300,000 \ 500,000 Operating income before taxes for year \ 100,000 \ 90,000 Average invested capital for year \ 100,000 \ 200,000 Invested capital at end of year \ 200,000 \ 300,000 Taxrate 30\% 30\% After-tax cost of capital for year 20\% 15\% Required: 1.Using operating income after taxes as the income measure,compute the following for each division: A) Return on investment. B) Return on sales C) Capital turnover D) Residual income 2. Which division is more successful? Why?

The following information pertains to a segment of the Marian 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 economic profit.A project earning a ROI of 12% should be ________.

Sanchez Company reports the following information: Net operating profit after taxes \5 00,000 Adjusted net operating profit after taxes \6 70,000 Average invested capital \ 500,000 Adjusted average invested capital \7 00,000 After-taxcost of capital 10\% The adjusted figures reflect adjustments used by Stern Stewart & Company.What is the EVA for Sanchez Company?

Assuming a company uses a cost-based pricing system for transfer pricing,which of the following items would NOT be used?

Profit-center managers always have more decentralized decision-making authority than cost-center managers.

Gonzalez Company reports the following information: Net operating income after taxes \ 200,000 Before-tax operating income \ 300,000 Average invested capital \ 500,000 After-tax cost of capital 10\% What is the residual income for Gonzalez Company?

Brady Division has operating income of $200,000 for the year ending December 31,2011.Average invested capital is $1,000,000 and the weighted-average cost of capital is 10%.The division is considering a new investment that would cost $500,000 and earn 15% annually.If return on investment is the performance metric,should the manager of the Brady Division accept the new investment?

Dersey 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 Processin }&\text {27 per unit } \\ \text { Division B Selling}&\text {12 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.Division A has excess capacity.Division B can buy the part for $75 per unit from an outside supplier.What is the lowest transfer price per unit Division A will accept from Division B?