Exam 12: Performance Evaluation and Decentralization

What are the advantages and disadvantages of return on investment (ROI)?

Giga-Stuff, Inc.Giga-Stuff, Inc. has a number of divisions. One division, Sophistosand, makes component X, which is used in the manufacture of DVD players. Another division, Videostuff, makes DVD players and needs 60,000 units of component X per year. Sophistosand incurs the following costs for one unit of component X: Direct materials \ 0.30 Direct labour 0.15 Variable overhead 0.70 Fixed overhead Total Sophistosand has the capacity to make 400,000 units of component X per year but, due to a soft market, plans to produce and sell only 320,000 units next year. Videostuff currently buys component X from an outside supplier for $2.50 each (the same price that Sophistosand receives). -Refer to Giga-Stuff, Inc. Assume that Sophistosand and Videostuff have agreed on a transfer price of $2.20. What are the total cost savings for Videostuff?

The Glass Division of a company makes glass vases, which have the following unit costs: Direct materials \ 0.20 Direct labour 0.35 Variable overhead 0.15 Fixed overhead 1.30 Selling commission 0.50 The Florist Division of the company sells cut flowers and uses the glass vases. The Florist Division uses 10,000 vases per year and currently buys them from an outside supplier for $4 each. The Glass Division produces and sells 100,000 glass vases per year and sells them on the outside market for $4 each. Vases sold outside incur the sales commission; this commission would not be paid on internal transfers. The Glass Division and the Florist Division managers just met and agreed on a transfer price of $3.75 per vase. Is this a good idea for each division? Explain.

Last year, Western Division had a ROI of 15%. The manager of the Western Division is considering an additional investment for the coming year. What step will the manager likely choose to take?

What is the definition of a testable strategy?

Gamma Division The manager of Gamma Division projects the following for next year: Sales \ 100,000 Operating income \ 30,000 Operating assets \ 200,000 The manager can invest in an additional project that would require $30,000 investment in additional assets and would generate $4,200 of additional income. The company's minimum rate of return is 12%. -Refer to Gamma Division. What is the residual income with the additional project?

Match each of the following terms with their correct description from the items listed below.* Each term may be used more than once, and it is possible that one or more of the classifications may not be used at all. -A responsibility centre in which a manager is responsible only for sales

A segment of Syntex, Inc. manufactures and sells blankets. The various models of blankets are produced in a single factory using stable technology. They are sold by the sales department, which is also located in the factory. What centre is most probably used to account for this segment?

Giga-Stuff, Inc.Giga-Stuff, Inc. has a number of divisions. One division, Sophistosand, makes component X, which is used in the manufacture of DVD players. Another division, Videostuff, makes DVD players and needs 60,000 units of component X per year. Sophistosand incurs the following costs for one unit of component X: Direct materials \ 0.30 Direct labour 0.15 Variable overhead 0.70 Fixed overhead Total Sophistosand has the capacity to make 400,000 units of component X per year but, due to a soft market, plans to produce and sell only 320,000 units next year. Videostuff currently buys component X from an outside supplier for $2.50 each (the same price that Sophistosand receives). -Refer to Giga-Stuff, Inc. Assume that Sophistosand and Videostuff have agreed on a transfer price of $2.20. What is the total benefit for the company?

Top management usually sets the transfer pricing policy, but the dicisions still decide whether or not to transfer.

What does the process value chain consist of?

In terms of a Balanced Scorecard, define Strategy?

Suppose the selling division is operating at less than full capacity. Where would the floor of the bargaining range most probably be set at?

Suppose the International Division of National Products Company had a turnover ratio of 5.2 and a margin of 0.10. What would be the return on investment?

What is the formula for calculating economic value added (EVA)?

Unlike ROI, residual income can encourage a short-run orientation.

Refer to Plank Inc. Assume the following: ∙ Paint Division can make 1,000,000 L per year, and expects to produce 800,000 L. ∙ Construction Division currently buys 200,000 L of paint from an outside supplier for $5.30 per litre (the same price that the Paint Division receives). Required: A. The maximum transfer price per litre of paint is $__________________. B. The minimum transfer price per litre of paint is $__________________. C. Assume that the transfer takes place at $5 per litre; calculate the amount by which each of the following will be better off with the transfer than without it. Paint Division: $__________________ Construction Division: $__________________ Plank, Inc., as a whole: $__________________

Transfer pricing decisions may harm the company as a whole.

Giga-Stuff, Inc.Giga-Stuff, Inc. has a number of divisions. One division, Sophistosand, makes component X, which is used in the manufacture of DVD players. Another division, Videostuff, makes DVD players and needs 60,000 units of component X per year. Sophistosand incurs the following costs for one unit of component X: Direct materials \ 0.30 Direct labour 0.15 Variable overhead 0.70 Fixed overhead Total Sophistosand has the capacity to make 400,000 units of component X per year but, due to a soft market, plans to produce and sell only 320,000 units next year. Videostuff currently buys component X from an outside supplier for $2.50 each (the same price that Sophistosand receives). -Refer to Giga-Stuff, Inc. Assume that Sophistosand and Videostuff have agreed on a transfer price of $2.20. What is the total benefit for Sophistosand?

Last night, Rebecca worked on her accounting homework for two and a half hours. During that time, she completed eight problems. What is Rebecca's velocity in problems per hour?