Posted: May 13th, 2018

devry acct349 week 7 homework

Chapter 22
Review Questions and Exercise
Fill
in the blank(s) to complete each statement.
1.
A means of gathering and using information to aid and coordinate the planning
and control decisions throughout the organization and to guide the behavior of
its managers and other employees is called a
__________.
2.
__________ exists when individuals and groups work toward achieving the
organization’s goals—that is, managers working in their own perceived best
interest take actions that align with the overall goals of top management.
3.
The desire to attain a selected goal combined with the resulting pursuit of
that goal is called _
4.
__ is the freedom for managers at lower levels of an organization to make
decisions.
5.
_ _________ refers to the degree of freedom to make decisions.
6.
__ __________ arises when the benefit of a decision to a subunit is more than
offset by the costs or loss of benefit to the organization as a whole.
7.
Products transferred between subunits of a company are called ________.
8.
What four criteria help in choosing a transfer price? ___ and _
9.
In many situations, a general guideline formula has proven to be a helpful
first step in setting a minimum transfer price. This minimum transfer price is
equal to the sum of which two per-unit costs?

True-False
Indicate
whether each statement is true (T) or false (F).
___
1. The informal control system in an organization is likely to include a human
resources system that provides information on recruiting, training,
absenteeism, and accidents.
___
2. Conceptually, the degree of decentralization in a company depends primarily
on determining the optimal number of profit centers.
___
3. Suboptimal decisions are often associated with a lack of goal congruence.
___
4. Decentralization is likely to be most beneficial when a company’s subunits
are highly interdependent.
___
5. One way to limit decentralization is to impose restrictions on the ability
of subunits to outsource products that are available from internal subunits.
___
6. Profit centers are compatible with high centralization or high
decentralization.
___
7. The choice of a transfer-pricing method can affect how a company’s
operatingincome pie is divided among the individual subunits as well as the
size of the operating-income pie itself.
___
8. If top management imposes insourcing on its subunit managers, total company
operating income will be unaffected by the transfer-pricing method used.
____
9. Full-cost transfer prices are frequently used in practice to help avoid the
pitfalls of suboptimal decision making.
____
10. Compared to domestic companies, multinational companies must consider
additional
factors
in setting their transfer prices, including different income tax rates in
various countries and promotion of goal congruence.

Multiple Choice
____
1. (CMA adapted) Which of the following is decentralizationleast likelyto accomplish?
c.
Heighten goal congruence.

operating income, might decide to buy a
component part from an external supplier when it is in the company’s best
interest to buy the part internally.

____
2. (CPA) Brent Co. has intra-company service transfers from Division Core, a
cost center, to Division Pro, a profit center. Under stable economic
conditions, which of the following transfer prices is likely to be most
conducive to evaluating whether both divisions have met their responsibilities?

.

____
3. Designing the transfer-pricing system is most difficult in organizations
that are:

.

___
4. (CMA) Parkside Inc. has several divisions that operate as decentralized
profit centers. Parkside’s Entertainment Division manufactures video arcade
equipment using the products of two of Parkside’s other divisions. The Plastics
Division manufactures plastic components; one type is made exclusively for the
Entertainment Division, while other less complex components are sold to
external markets. The products of the Video Cards Division are sold in a competitive
market, but one video card model is also used by the Entertainment Division.
The actual manufacturing cost per unit of the Entertainment Division is as
follows:

Plastics Components

Video Cards

Direct materials used

$1.25

$2.40

Direct manuf. labor

2.35

3.00

Variable overhead

1.00

1.50

Fixed overhead

.40

2.25

Total cost per
unit

$5.00

$9.15

The
Plastics Division sells its commercial products at full cost plus a 25% markup
based on cost and believes the proprietary plastic component made for the Entertainment
Division would sell for $6.25 per unit on the open market. The market price of
the video card used by the Entertainment Division is $10.98 per unit.
Assuming
the Video Cards Division has no unused capacity, a transfer price to the Entertainment
Division of $9.15 per unit will:

____
5. Use the information in question 4 but assume the Entertainment Division is able
to purchase a large quantity of video cards from an external supplier at $8.70
per unit. The Video Cards Division, having unused capacity, agrees to lower the
transfer price to $8.70 per unit. This action will:

__B__
6. Use the information in question 4 and assume the Plastics Division has
unused capacity and negotiates a transfer price of $5.60 per plastic component
with the Entertainment Division. This price will:

_B___
7. (CPA adapted) Mar Company has two decentralized divisions, X and Y. Division
X has been purchasing certain component parts from Division Y at $75 per unit.
Because Division Y plans to raise the price to $100 per unit, Division X desires
to purchase these parts from external suppliers for $75 per unit. Thefollowing information is available:

Y’s variable cost per unit

$70

Y’s annual fixed costs

$15,000

Y’s annual production

of these parts for
X

1,000 units

If
Division X buys from an external supplier, the facilities Division Y uses to manufacture
these parts will be idle. Assuming Division Y’s fixed costs cannot be avoided,
what is the result if Mar requires Division X to buy from Division Y at a transfer
price of $100 per unit?

If Mar requires transfers
be made at $100 per unit, Division X pays Division Y 1,000 x $100 = $100,000.
This transaction is intra-company (interdivisional) in nature (that is, money
goes out of one corporate pocket into another corporate pocket). The $100,000, therefore, has no effect on
operating income of the company as a whole.The effect of purchasing
internally on the operating income of the company as a whole is:

Review Exercises
1.
During the current year, Division A of Galloway Company incurred the following
manufacturing costs
for
5,000 units of a component part:

Total

Per
Unit

Variable
costs

$200,000

$40

Fixed
costs

40,000

8

a.
Compute the advantage/disadvantage to the company as a whole (in terms of next
year’s operating income) if there are no alternative uses for Division A’s
facilities, and if Division B purchases 5,000 units of this part from an
external supplier at a price of (1) $43 per unit (2) $36 per unit.

b.
Compute the advantage/disadvantage to the company as a whole (in terms of next
year’s operating income) if there are alternative uses for Division A’s
facilities by other Galloway operations that would otherwise require additional
outlay costs of $26,000, and if Division B purchases 5,000 units of this part
from an external supplier at a price of (1) $43 per unit (2) $36 per unit.

(1)

(2)

2.
Empire Company has two divisions. Division A is located in the United States
where the income tax rate is 40%. Division K is located in Korea where the
income tax rate is 30%. Division A produces an intermediate product at a
variable cost of $100 per unit, and transfers the product to Division K where
it is finished and sold for $500 per unit. Variable cost in Division K is $80
per unit. Fixed costs are $75,000 per year in Division A and $90,000 per year
in Division K. Assume 1,000 units are transferred annually and the minimum
transfer price allowed by the U.S. tax authorities is the variable cost. Also
assume operating income in each country is equal to taxable income.
a.
What transfer price should be set for Empire to minimize its total income
taxes? Show your calculations.

b.
If Empire desires to minimize its total income taxes, calculate the amount of
tax liability in each country.

Division A (U.S.)

Division K (Korea)

Chapter 23
Review Questions and Exercises
1.
Designing accounting-based performance measure for an organization subunit
requires three steps. Step 1 is to choose performance measures that ______
financial goals.
2.
In the formula to calculate residual income, the required rate of return
multiplied by investment is called the cost of the investment.
3.
____ cost is the cost of purchasing an asset today identical to the one
currently held, or the cost of purchasing an asset that provides services like
the one currently held if an identical asset cannot be purchased.
4.
An important consideration in designing compensation arrangements is the
trade-off between creating _____ to get the manager to work hard and imposing _
on the manager.
5.
_ describes situations in which an employee prefers to exert less effort (or report
distorted information) compared to the effort (or accurate information) desired
by the owner, because the employee’s effort (or validity of the reported
information) cannot be accurately monitored and enforced.
6.
Name the four levers of control. __

True-False
Indicate
whether each statement is true (T) or false (F).
___
1. A company’s market share is an example of external nonfinancial information.
___
2. A good reason for using ROI as a performance measure rather than RI is that goal
congruence is more likely to be promoted by using ROI.
___
3. The DuPont method of profitability analysis recognizes two basic ingredients
to profit making: increasing income per dollar of revenues and using assets to
generate more revenues.
___
4. If companies compensate managers on the basis of changes in the market price
of the company’s stock, this approach tends to shorten managers’ time horizon because
stock prices incorporate the expected future period effects of current decisions.
_5.
Those who favor using net book value as the investment base in ROI calculations
claim this approach enables more accurate comparisons to be made across subunits.
___
6. Comparing performance of the divisions of a multinational company is
difficult because of economic, legal, political, cultural, and currency
differences.
___
7. The necessary and sufficient condition for moral hazard to exist in a
company is that the employee’s interest differs from the owner’s interest.
___
8. Performance measures that are sensitive to the manager’s performance
motivate the manager but limit his or her exposure to uncontrollable risk.
___
9. It can be cost effective to benchmark a manager’s performance against the
best levels of performance available within the company or in other companies.
___
10. Holding managers and other employees accountable for and rewarding them for
achieving performance goals in diagnostic control systems needs to be
counterbalanced with boundary systems, belief systems, and interactive control
systems.

Multiple Choice
____
1. Roma Bottling Co. has an investment of $3,000,000, an income-to-revenues
ratio of 4%, and an ROI of 12%. Its revenues are:

____
2. Using the information in question 1, the revenues-to-investment ratio is:

____
3. (CMA adapted) A company’s ROI increases if:

___
4. For the fiscal year just ended, Fletcher Inc. has an RI of $180,000 and
operating income of $500,000. If the required rate of return is 16%, the amount
of investment is:

___
5. Using the information in question 4, ROI is:

____
6. (CPA) Marsh Inc. has an incentive compensation plan under which its
president is paid a bonus equal to 10% of Marsh’s income after deducting the
bonus but before deducting income taxes. For the year ended December 2010,
Marsh’s income was $110,000 before deducting the bonus and income taxes. Marsh
had income taxes of $40,000 in 2010. How much bonus should Marsh pay its
president for 2010?

Review Exercises
1.
Rochelle Company has just purchased a milling machine at a cost of $200,000.
The machine is expected to generate operating income of $18,000 per year during
its 10-year useful life. Rochelle uses the straight-line method of depreciation
with a zero terminal disposal value.

Calculate
ROI in the following situations:
a.
First year using gross book value as the investment base.

b.
Sixth year using gross book value as the investment base.

c.
First year using net book value at the end of the year as the investment base.

d.
Sixth year using net book value at the beginning of the year as the investment
base.

2.
The Kline Corporation manufactures pharmaceutical products in the U.S. and
China. The operations are organized as decentralized divisions. The following
information is available for 2010:

U.S.
Division

China
Division

Operating
income

$2,400,000

11,400,000
yuan

Total
assets

$16,000,000

75,000,000 yuan

The
exchange rate at the time of Kline’s investment in China on December 31, 2009
was 7.5 Chinese yuan = $1 U.S. During 2010, the yuan declined steadily in value
and the exchange rate on December 31,
2010,
was 8.5 yuan = $1. The average exchange rate during 2010 was 8 yuan = $1.

a.
Calculate the U.S. Division’s ROI for 2010 based on dollars.

b.
Calculate the China Division’s ROI for 2010 based on yuan.

c.
Which of Kline’s two division’s earned the better ROI in 2010? Explain your
answer, complete with supporting calculations.

3.
Endicott Inc. has four divisions. Each division produces and sells a variety of
industrial products. The company is developing a compensation plan for the
division managers. Three options are being considered: (a) salary, (b) a
performance-based incentive using RI, (c) mix of salary and a performance-based
incentive using RI. What factors should be considered in designing this plan?
“
29525,UMUC NSCI362 Exercise – Population Pyramid Building,.umuc.edu/d2l/img/0/Shared.Main.actHide.png?v=10.3.0.791-109″” alt=””””>Hide Folder InformationFolderExercise – Population Pyramid BuildingInstructionsPopulation Pyramid BuildingDue date: on midnight at the end of Week 4.Population pyramids show the age structure of the population of a country or region. Different growth patterns caused by varying cultural values

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