Exam 12: Performance Evaluation and Decentralization

The Machine Division provides engines for the ATV Division of a company.The standard unit costs for Machine Division are as follows: Direct materials \ 500 Direct labour 1,100 Variable overhead 200 Fixed overhead 100 Market price per unit 3,000 The engine department has excess capacity.What is the best transfer price to avoid transfer price problems?

Several transfer pricing policies are used in practice.Which of the following transfer pricing policies is not used?

Direct materials \ 0.30 Direct labour 0.15 Variable overhead 0.70 Fixed overhead 1.00 Total \ 2.15 -Refer to the Figure.Assume that Sophistosand and Videostuff have agreed on a transfer price of $2.20.What is the total benefit for Giga-Stuff,Inc.?

Match each term with the correct statement from below. -A(n)___________ is a responsibility centre in which a manager is responsible for sales,costs,and investments.

Each month,a vacuum cleaner manufacturing cell has 800 hours of time available.During that time,the cell could have manufactured up to 2,400 vacuums,but only 1,600 vacuums were actually manufactured.Calculate the following: A. Theoretical cycle time in minutes B. Theoretical velocity per hour C. Actual cycle time in minutes D. Actual velocity per hour

Black Sea Company has two divisions,the Old Division and the New Division.Last year,the Old Division earned $66,000 using average operating assets of $550,000.Last year,the New Division earned $260,000 using average operating assets of $2,000,000.Minimum required rate of return for Black Sea is 9%. A. For the Old Division, residual income is______ B. For the New Division, residual income is_______ Now assume that the minimum required rate of return for Black Sea is 12%. C. For the Old Division, residual income is_______ D. For the New Division, residual income is_______

Direct materials \ 0.30 Direct labour 0.15 Variable overhead 0.70 Fixed overhead 1.00 Total \ 2.15 -Refer to the Figure.Assume that Giga-Stuff allows negotiated transfer pricing.What is the floor of the bargaining range,and which division sets it?

Division A Division B Sales ? 1,250,000 Net operating income \ 25,000 \ 75,000 Average operating assets ? ? Return on investment 20\% 15\% Margin 0.05 ? Tumnover ? ? Target ROI 12\% 10\% -Refer to the Figure.What are the sales for Division A?

How is residual income calculated?

Plank,Inc.has a division that makes paint and another division that constructs subdivisions.The paint division incurs the following costs for one litre of paint: Direct materials \ 1.10 Direct labour 1.45 Variable overhead 0.90 Fined overhead 1.15 Total \ 4.60 The Paint Division can make 1,000,000 L per year,and expects to produce 1,000,000 L next year.The Construction Division currently buys 200,000 L of paint from an outside supplier for $5.20 per litre (the same price that the Paint Division receives). A. The maximum transfer price per litre of paint is $\$\_\_\_\_\_$ . B. The minimum transfer price per litre of $p$ aint is $\$\_\_\_\_\_$ C. Does it matter whether or not the two divisions transfer?

Match each term with the correct statement from below. -The manager of a(n)___________ is evaluated on the basis of income.

Which of the following is a disadvantage of a focus on return on investment?

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.

Operating income \ 60,000 Sales \ 240,000 Beginning operating assets \ 440,000 Ending operating assets \ 450,000 -Refer to the Figure.What was Condor's return on investment last year?

In negotiated transfer pricing,the selling division sets the ceiling (maximum possible transfer price)for the bargaining range.

Ding Company had operating income of $140,000,sales of $437,500,and turnover of 0.5.What is Ding's ROI?

The Engine Division provides engines for the Tractor Division of a company.The standard unit costs for Engine Division are as follows: Direct materials \ 700 Direct labour 1,300 Variable overhead 400 Fixed overhead 350 Market price per unit 2,730 What is the transfer price that is based on full cost plus a markup of 35%?

How is EVA (economic value added)different from standard residual income calculations?

Economic value added (EVA)is similar to ROI in that it links net income to capital employed.

In a decentralized company,central management is able to focus on the day-to-day operations of the company.