Question 1

Managers in decentralized units may waste time negotiating with other units about goods or services one unit provides to the other.

Accepted Answer

A) True 
 B)False

Question 2

A drawback to market-based prices is that in an imperfectly competitive market, the price of one division has to pay to buy an item may be less than the amount another division gets for selling the same item.

Accepted Answer

A) True 
 B)False

Question 3

Usually, perfect measurement of a manager's performance is worth its cost.

Accepted Answer

A) True 
 B)False

Question 4

This equals net operating income minus the after-tax weighted-average cost of capital multiplied by the sum of long-term liabilities and stockholders' equity

Accepted Answer

The answer of This equals net operating income minus the...

Question 5

The original cost of an asset less any accumulated depreciation

Accepted Answer

The answer of The original cost of an asset less...

Question 6

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

Accepted Answer

A) a product to the same customer 
B) a service to each other 
C) a product in a foreign country 
D) the same service to competitors

Question 7

All control systems are imperfect.

Accepted Answer

A) True 
 B)False

Question 8

The greater the influence of noncontrollable factors on responsibility center results, the more problems there are in using the results to represent a manager's performance.

Accepted Answer

A) True 
 B)False

Question 9

The following information is available for the Fling Company: $$\begin{array} { l r } 
\text { Sales } & \$ 350,000 \
\text { Invested capital } & 156,250 \
\text { ROI } & 10 \%
\end{array}$$ The capital turnover ratio is _____.

Accepted Answer

A) 2.240 
B) 0.100 
C) 0.625 
D) none of these answers is correct

Question 10

Diaz Company makes internal transfers at 180% of full cost.The Soda Refining division purchases 30,000 containers of carbonated water per day, on average, from a local supplier who delivers the water for $30 per container via an external shipper.To reduce costs, the company located an indepen?dent producer in Iowa who is willing to sell 30,000 containers at $20 each, delivered to Diaz Company's shipping division in Iowa.The company's Shipping Division in Iowa has excess capacity and can ship the 30,000 containers at a variable cost of $3.50 per container._____ is the total cost of purchasing the water from the Iowa supplier and shipping it to the Soda Division.

Accepted Answer

A) $600,000 
B) $705,000 
C) $1,080,000 
D) $1,215,000

Question 11

EVA = adjusted after-tax operating income - cost of invested capital - a percentage x adjusted average invested capital).

Accepted Answer

A) True 
 B)False

Question 12

Identify which of the following adjustments to after-tax operating income is used to approximate cash income.

Accepted Answer

A) expensing research and development costs 
B) using LIFO valuation 
C) deducting interest payable 
D) using taxes paid rather than tax expense

Question 13

Merkey Company records reveal the following: $\begin{array}{lr}\text { Division } \mathrm{X}\
\text { Market price of finished component to outsiders } & \$ 32 \
\text { Variable costs per component } & \underline{24} \
\text { Contribution margin per component } & \underline{\$ 8} \
\text { Total contribution for } 20,000 \text { components } & \$ 160,000
\end{array}$

$\begin{array}{ll}\text { Division Y }\
\text {Sales price of finished product Variable costs: } & &&\$42 \
\text {Division X 1 component @ \$24) } &  \
\text {Division Y } & &\$24 \
\text { Assembly} & \$9 \
\text { Packaging} & 4&13&-37 \
\text {Contribution margin per unit } & &&\$5 \
\text {Total contribution for 20,000 units } & &&\$100,000 \
\end{array}$
 The variable costs of Division Y will be incurred whether it buys from Division X or from an outside supplier.If Division X is working at full capacity, the best transfer price from the viewpoint of the company as a whole would be _____.

Accepted Answer

A) $42 
B) $24 
C) $8 
D) $32

Question 14

Most companies use economic profit in evaluating projects, not ROI.

Accepted Answer

A) True 
 B)False

Question 15

Transfer prices are _____.

Accepted Answer

A) costs of the segment producing the product or service 
B) revenues of the segment acquiring the product or service 
C) revenues of the segment producing the product or service 
D) none of these answers is correct

Question 16

"Both ROI and economic profit use profit and invested capital to measure performance.
Therefore, it really doesn't matter which we use." Do you agree? Explain.

Accepted Answer

The answer of "Both ROI and economic profit use profit...

Question 17

The rate of return on gross book value will not change if operating income remains constant.

Accepted Answer

A) True 
 B)False

Question 18

The decision?making power of segment managers

Accepted Answer

The answer of The decision?making power of segment managers...

Question 19

Identify which of the following definitions of invested capital is not recommended for measuring the performance of division managers.

Accepted Answer

A) total assets 
B) total assets less total liabilities 
C) total assets employed 
D) total assets less current liabilities

Question 20

The proponents of gross book value maintain that it facilitates comparisons between years and between plants or divisions.

Accepted Answer

A) True 
 B)False

Exam 10: Management Control in Decentralized Organizations

Managers in decentralized units may waste time negotiating with other units about goods or services one unit provides to the other.

A drawback to market-based prices is that in an imperfectly competitive market, the price of one division has to pay to buy an item may be less than the amount another division gets for selling the same item.

Usually, perfect measurement of a manager's performance is worth its cost.

This equals net operating income minus the after-tax weighted-average cost of capital multiplied by the sum of long-term liabilities and stockholders' equity

The original cost of an asset less any accumulated depreciation

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

All control systems are imperfect.

The greater the influence of noncontrollable factors on responsibility center results, the more problems there are in using the results to represent a manager's performance.

The following information is available for the Fling Company: $\begin{array} { l r } \text { Sales } & \$ 350,000 \\\text { Invested capital } & 156,250 \\\text { ROI } & 10 \%\end{array}$ The capital turnover ratio is _____.

EVA = adjusted after-tax operating income - cost of invested capital - a percentage x adjusted average invested capital).

Identify which of the following adjustments to after-tax operating income is used to approximate cash income.

Most companies use economic profit in evaluating projects, not ROI.

Transfer prices are _____.

"Both ROI and economic profit use profit and invested capital to measure performance. Therefore, it really doesn't matter which we use." Do you agree? Explain.

The rate of return on gross book value will not change if operating income remains constant.

The decision?making power of segment managers

Identify which of the following definitions of invested capital is not recommended for measuring the performance of division managers.

The proponents of gross book value maintain that it facilitates comparisons between years and between plants or divisions.