Exam 10: Management Control in Decentralized Organizations

Return on investment equals return on sales divided by capital turnover.

Julio Company's after-tax operating income was $882 million.Total assets were $5,900 million and total stockholders' equity was $4,050 million.Julio Company's cost of capital was 10%.Julio Company uses total assets as the measure of invested capital.What is Julio Company's EVA?

The time and effort spent negotiating a transfer price between a company's divisions adds nothing directly to the profits of a company.

If the segments in a firm buy from the same outside suppliers all the time,they are good candidates for decentralization.

Employees have a higher incentive to work when the bonus portion of an employment contract is larger than the guaranteed portion of the contract.

Highpointe Division sells a part internally to Low Division.Low Division uses the part to produce inexpensive products sold at discount stores.Highpointe Division incurs costs of $1.50 per part,while Low Division incurs additional costs of $4.80 per product.Highpointe Division sells the part to Low Division for $2.00 per part. Low Division can purchase the part from an outside supplier for $1.00 per part,but does not accept the offer.The final product is sold to external customers for $8.00 each.Which of the following formulas correctly reflects the company's operating income?

________ is the delegation of decision-making power to segment managers of an organization.

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

Which statement is FALSE about performance metrics?

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

It is recommended that standard costs be used instead of actual costs for cost-based transfer prices.

From the view of the company as a whole,managers should accept investment projects that earn more than the ________.________ should not be used for investment decisions.

In agency theory,risk to the manager is defined as ________.

In designing accounting control systems,top managers should consider the system's impact on the behavior of employees.

Transfer prices are the amounts charged by one segment of an organization for a product that it supplies to an outside firm.

Nelson Company has two divisions.The following information is available: Required: Compute the following for each division: A)Return on investment B)Return on sales C)Capital turnover D)Residual income

EVA equals adjusted after-tax operating income minus capital turnover.

Define decentralization and identify its expected benefits.

Organizations should choose performance metrics that improve the alignment of managerial incentives with ________.

Managers evaluated using net book value will tend to replace assets sooner than managers evaluated using gross book value.