Deck 22: Getting Divisions to Work in the Firms Best Interest

Question 1

Managers of profit centers earn more when their divisions

A)increase their sales and increase their costs
B)decrease their sales and increase their costs
C)decrease the costs of the components for which they are responsible
D)increase the costs of the components for which they are responsible

Answer 1

C

Question 2

Conflicts can arise between divisions because

A)some activities across divisions benefit from coordination
B)managers of profit centers care too little about the effects of their decisions on other divisions
C)managers are rewarded only for how well their own division is run
D)all of the above

Answer 2

D

Question 3

Transfer prices

A)are an accounting devise to allocate the costs and revenues of intermediate products across divisions
B)increase the 'profits' of the profit center producing the intermediate product when they rise
C)decrease the 'profits' of the profit center using the intermediate product when they rise
D)all of the above

Answer 3

D

Question 4

In profit centers

A)Managers are difficult to evaluate because there is no simple metric of how well they performed
B)Managers typically do not have the information to run their division efficiently
C)Managers' decisions rarely affect other divisions
D)Managers typically have ample incentives to run their division efficiently

Question 5

All of the following describe the conflict between divisions EXCEPT

A)some activities across divisions benefit from coordination
B)managers of profit centers care too little about the effects of their decisions on other divisions
C)corporate executives reward managers who are able to become more efficient
D)corporate executives cannot tell when one divisional manager's decision is appropriate or not

Question 6

All of the following describe the conflict between divisions EXCEPT

A)some activities across divisions benefit from coordination
B)managers of profit centers care too little about the effects of their decisions on other divisions
C)managers are rewarded only for how well their own division is run
D)A divisional manager does not have authority to run her division efficiently

Question 7

In profit centers

A)Managers are difficult to evaluate because there is no simple metric of how well they performed
B)Managers typically do not have the information to run their division efficiently
C)Managers' decisions can affect other divisions
D)Managers typically do not have the incentives to run their division efficiently

Question 8

An example of organizational architecture based on customer location is when divisions are defined as

A)R&D,Engineering,Production,Marketing,Sales
B)Component 1 Plant,Component 2 Plant,Component 3 Plant,Final Assembly
C)Store 1,Store 2,Store 3,Region A,Region B,Sales Division
D)Business Customers,Educational Customers,Household Customers

Question 9

An example of organizational architecture based on production of intermediate products is when divisions are defined as

A)R&D,Engineering,Production,Marketing,Sales
B)Component 1 Plant,Component 2 Plant,Component 3 Plant,Final Assembly
C)Store 1,Store 2,Store 3,Region A,Region B,Sales Division
D)Business Customers,Educational Customers,Household Customers

Question 10

Managers of profit centers earn more when their divisions

A)increase their sales and decrease their costs
B)decrease their sales and increase their costs
C)increase the costs of the components for which they are responsible
D)none

Question 11

In profit centers

A)Managers are difficult to evaluate because there is no simple metric of how well they performed
B)Managers typically have the necessary information to run their division efficiently
C)Managers' decisions rarely affect other divisions
D)Managers typically do not have the incentives to run their division efficiently

Question 12

In profit centers

A)Managers are easy to evaluate because there is a simple metric of how well they performed
B)Managers typically do not have the information to run their division efficiently
C)Managers' decisions rarely affect other divisions
D)Managers typically do not have the incentives to run their division efficiently

Question 13

An example of organizational architecture based on the different functions of a firm is when divisions are defined as

A)R&D,Engineering,Production,Marketing,Sales
B)Component 1 Plant,Component 2 Plant,Component 3 Plant,Final Assembly
C)Store 1,Store 2,Store 3,Region A,Region B,Sales Division
D)Business Customers,Educational Customers,Household Customers

Question 14

A profit center is

A)evaluated based on minimizing costs within the division
B)evaluated based on maximizing costs within the division
C)evaluated based on minimizing profits generated by the division
D)evaluated based on maximizing profits generated by the division

Question 15

A cost center is

A)evaluated based on minimizing costs within the division
B)evaluated based on maximizing costs within the division
C)evaluated based on minimizing profits generated by the division
D)evaluated based on maximizing profits generated by the division

Question 16

When a transfer price is set higher

A)the profits of the division producing the intermediate product will rise
B)the profits of the division producing the intermediate product will fall
C)the costs of the division producing the intermediate product will rise
D)the costs of the division producing the intermediate product will fall

Question 17

All of the following describe the conflict between divisions EXCEPT

A)some activities across divisions benefit from coordination
B)managers of cost centers care too little about enhancing revenues
C)managers are rewarded only for how well their own division is run
D)corporate executives cannot tell when one divisional manager's decision is appropriate or not

Question 18

An example of organizational architecture based on customer type is when divisions are defined as

A)R&D,Engineering,Production,Marketing,Sales
B)Component 1 Plant,Component 2 Plant,Component 3 Plant,Final Assembly
C)Store 1,Store 2,Store 3,Region A,Region B,Sales Division
D)Business Customers,Educational Customers,Household Customers

Question 19

A division of a firm is

A)a logical sub-organization of the firm
B)a level within the firm in which a large degree of autonomy is vested
C)a level of hierarchy within a firm that defines the scope of a manager
D)all of the above

Question 20

All of the following describe the conflict between divisions EXCEPT

A)Divisional managers are rewarded for the efficiency of their divisions
B)managers of profit centers care too little about the effects of their decisions on other divisions
C)managers are rewarded only for how well their own division is run
D)corporate executives cannot tell when one divisional manager's decision is appropriate or not

Question 21

When a transfer price is set lower

A)the costs of the division using the intermediate product will fall
B)the profits of the division using the intermediate product will be unaffected
C)the profits of the division using the intermediate product will fall
D)the profits of the division using the intermediate product will rise

Question 22

When a transfer price is set higher

A)the buying division will chose to purchase less from the selling division
B)the buying division will chose to purchase more from the selling division
C)the selling division will chose to purchase less from the buying division
D)the selling division will chose to purchase more from the buying division

Question 23

When considering setting the transfer price at the market price of a product similar to the intermediate good that is already available on the market

A)It is appropriate to ignore that the market price includes a margin above marginal cost
B)It is OK if the product on the market includes costly features your downstream division does not use
C)Consider whether the product on the market is inexpensive because its quality is lower than you use
D)if it is similar enough,it is justification for you producing it in-house

Question 24

If the fixed costs are relatively large,a relatively good approximation to the correct transfer price is

A)average costs
B)average fixed costs
C)average variable costs
D)the market price

Question 25

If products similar to the intermediate good are sold,an approximation to the correct transfer price is

A)average costs
B)average fixed costs
C)average variable costs
D)the market price

Question 26

The U-Form of corporate organization

A)organizes employees along the functions or tasks that they perform
B)organizes employees along the customer types that they serve
C)organizes employees along individual projects that arise
D)organizes employees into softball teams

Question 27

When considering setting the transfer price at the market price of a product similar to the intermediate good that is already available on the market

A)It is appropriate to ignore that the market price includes a margin above marginal cost
B)Consider whether the product on the market includes costly features your downstream division does not use
C)it is OK if the product on the market is inexpensive because its quality is lower than you use
D)if it is similar enough,it is justification for you producing it in-house

Question 28

When considering setting the transfer price at the market price of a product similar to the intermediate good that is already available on the market

A)It is important to recognize that the market price includes a margin above marginal cost
B)It is OK if the product on the market includes costly features your downstream division does not use
C)it is OK if the product on the market is inexpensive because its quality is lower than you use
D)if it is similar enough,it is justification for you producing it in-house

Question 29

The efficient transfer price is

A)the upstream division's average cost
B)the upstream division's marginal cost
C)the downstream division's average cost
D)the downstream division's marginal cost

Question 30

Which is a possible solution to a divisional conflict regarding a decision

A)change the division that has the authority to make the decision
B)change the information flow so that the decision maker is better informed
C)change the evaluation and reward scheme governing the decision maker
D)all of the above

Question 31

A reason there are divisional conflicts over the transfer price

A)the manager of the upstream division gets rewarded for a transfer price that is too high
B)the manager of the downstream division gets rewarded for a transfer price that is too low
C)the corporate headquarters does not have enough information to determine the correct transfer price
D)all of the above

Question 32

When a transfer price is set lower

A)the buying division will chose to purchase less from the selling division
B)the buying division will chose to purchase more from the selling division
C)the selling division will chose to purchase less from the buying division
D)the selling division will chose to purchase more from the buying division

Question 33

If it is particularly difficult for the corporate headquarters to determine the correct transfer price

A)average costs is a good enough approximation
B)average variable costs is a good enough approximation
C)a similar products market price is a good enough approximation
D)the upstream division could be run as a cost center

Question 34

When considering setting the transfer price at the market price of a product similar to the intermediate good that is already available on the market

A)It is appropriate to ignore that the market price includes a margin above marginal cost
B)It is OK if the product on the market includes costly features your downstream division does not use
C)it is OK if the product on the market is inexpensive because its quality is lower than you use
D)if it is similar enough,it calls into question whether there are gains from producing it in-house

Question 35

When a transfer price is set higher

A)the profits of the division using the intermediate product will rise
B)the profits of the division using the intermediate product will be unaffected
C)the profits of the division using the intermediate product will fall
D)the costs of the division using the intermediate product will fall

Question 36

When a transfer price is set lower

A)the buying division will want to sell less to the selling division
B)the buying division will want to sell more to the selling division
C)the selling division will want to sell less to the buying division
D)the selling division will want to sell more to the buying division

Question 37

A problem with using the price of a product similar to the intermediate good sold on the market is

A)the market price includes a margin above marginal cost
B)the product on the market may include costly features your downstream division does not use
C)the product on the market may be cheap because it is not as high of quality as your downstream division uses
D)all of the above

Question 38

When a transfer price is set higher

A)the buying division will want to sell less to the selling division
B)the buying division will want to sell more to the selling division
C)the selling division will want to sell less to the buying division
D)the selling division will want to sell more to the buying division

Question 39

When a transfer price is set lower

A)the profits of the division producing the intermediate product will rise
B)the profits of the division producing the intermediate product will fall
C)the costs of the division producing the intermediate product will rise
D)the costs of the division producing the intermediate product will fall

Question 40

If the fixed costs are relatively small,a relatively good approximation to the correct transfer price is

A)average costs
B)average fixed costs
C)average variable costs
D)the market price

Question 41

The features of the M-Form of firm organization are

A)divisions have difficulty responding to market changes
B)it is difficult to maintain customer relationships
C)coordination across divisions is simple and does not take much management time
D)employee evaluation is hampered by managers often having different skill sets than those the manage

Question 42

The features of the U-Form of firm organization are

A)workers have trouble developing a high degree of functional expertise
B)employees can easily share information across positions within a division
C)employee evaluation is hampered by managers having different skill sets than workers
D)coordination across divisions is simple and does not take much management time

Question 43

The features of the M-Form of firm organization are

A)divisions have difficulty responding to market changes
B)it is easier to maintain customer relationships
C)coordination across divisions is simple and does not take much management time
D)evaluating employees is easier because managers typically are similarly trained

Question 44

The features of the U-Form of firm organization are

A)workers can easily develop a high degree of functional expertise
B)it is difficult for employees to share information across positions within a division
C)employee evaluation is hampered by managers having different skill sets than workers
D)coordination across divisions is simple and does not take much management time

Question 45

The features of the M-Form of firm organization are

A)divisions have difficulty responding to market changes
B)it is difficult to maintain customer relationships
C)coordination across divisions is simple and does not take much management time
D)employee evaluation is hampered by managers often having different skill sets than those the manage

Question 46

The features of the M-Form of firm organization are

A)divisions can respond more easily to change
B)it is difficult to maintain customer relationships
C)coordination across divisions is simple and does not take much management time
D)evaluating employees is easier because managers typically are similarly trained

Question 47

Once a division manager sees that production goal for a time period is likely to be met

A)he has an incentive to increase the pace of production
B)he has an incentive to decrease the pace of production
C)he does not have an incentive to change the pace of production
D)he has an incentive to produce other products

Question 48

Annual budgeting of production goals of a division within a firm

A)is an accounting mechanism to plan for the costs and revenues over a time period
B)increase the burden on the division when goals rise
C)can lead to accumulated inventory when goals rise
D)all of the above

Question 49

A production goal may be set too high by upper management because

A)they are unsure about the actual costs of production
B)they under-estimate the difficulty of meeting a goal
C)division managers over-state the difficulty of meeting the goal
D)all of the above

Question 50

The advantages of the U-Form of firm organization is

A)workers develop a high degree of functional expertise
B)information can be easily shared between similarly trained employees within units
C)evaluating employees is easier because managers typically are similarly trained
D)all of the above

Question 51

The features of the M-Form of firm organization are

A)divisions have difficulty responding to market changes
B)it is difficult to maintain customer relationships
C)there is less coordination across the firm's divisions
D)evaluating employees is easier because managers typically are similarly trained

Question 52

The advantages of the M-Form of firm organization is

A)divisions can respond more easily to change
B)it is easier to maintain customer relationships
C)there is less coordination across the firm's divisions
D)all of the above

Question 53

Ways to "game" the budgeting process include

A)delaying sales if just short of a target
B)delaying expenses if just short of a target
C)accelerating sales once a target is met
D)delaying expenses costs once a target is met

Question 54

The features of the U-Form of firm organization are

A)workers have trouble developing a high degree of functional expertise
B)it is difficult for employees to share information across positions within a division
C)employee evaluation is hampered by managers having different skill sets than workers
D)coordination across divisions is essential and is a burden on management

Question 55

Ways to "game" the budgeting process include

A)delaying sales if just short of a target
B)accelerating expenses if just short of a target
C)delaying sales once a target is met
D)delaying expenses costs once a target is met

Question 56

The M-Form of corporate organization

A)organizes employees along the functions or tasks that they perform
B)organizes employees along the customer types that they serve
C)organizes employees along individual projects that arise
D)organizes employees into softball teams

Question 57

Ways to "game" the budgeting process include

A)accelerating sales if just short of a target
B)accelerating expenses if just short of a target
C)accelerating sales once a target is met
D)delaying expenses costs once a target is met

Question 58

The features of the U-Form of firm organization are

A)workers have trouble developing a high degree of functional expertise
B)it is difficult for employees to share information across positions within a division
C)employee evaluation is simplified by managers having similar skill sets than workers
D)coordination across divisions is simple and does not take much management time

Question 59

Ways to "game" the budgeting process include

A)delaying sales if just short of a target
B)accelerating expenses if just short of a target
C)accelerating sales once a target is met
D)accelerating expenses costs once a target is met