Based on the topic in the picture, what are the key points there that you think are important to analyze as a decision-maker? Getting Divisions to Workin the Firm's Best InterestsDlack liquor soap is a by-product of the paper manufacturing process atAcme's Paper Division. The Paper Division normally sold the soap to Acme'sResins Division, which converted it into crude tall oil, an input into resinmanufacturing. Since a low transfer price increased the Resins Division'sprofit, its managers spent a lot of effort lobbying for a low transfer price whilethe Paper Division pushed for a high transfer price.The Resins Division won this lobbying battle when a relatively low pricewas set, but it turned out to be a hollow victory. Given the low transfer price,the Paper Division decided to burn the soap for fuel rather than sell it to theResins Division, which was then forced to buy higher-priced soap on the openmarket. On net, burning the soap decreased overall company profit because itsvalue as a fuel was below that of its value as an input into resin manufacturing.To make matters worse, the Paper Division's burners were not designedto handle black liquor soap, leading to a potentially explosive situation.Fortunately, corporate headquarters recognized the danger; however, their"solution" was to spend $5 million for a special furnace to allow the PaperDivision to safely burn the soap.The moral of this story is that incentive conflict between divisions is costlyto control. In this case, a low transfer price not only prevented the movementof an asset (black liquor soap) to a higher-valued use (resin manufacturing),but the parent company compounded its mistake by building a new furnace.In addition, lobbying by the two divisions diverted management attentionfrom more important issues. All these costs could have been reduced, if notavoided, had the managers of Acme read this chapter.ncentive Conflict between DivisionsIncentive conflicts arise in the normal course of business; however, these con-flicts need not reduce a company's profit. With two simple modifications, wecan apply the framework set up in Chapter 21 to make sure that the incentives283

DECISION MAKING: Decision making is the process of finding out the problem, setting objectives for…

Answered: Based on the topic in the picture, what…

Based on the topic in the picture, what are the key points there that you think are important to analyze as a decision-maker?

Understanding Business

12th Edition

ISBN:9781259929434

Author:William Nickels

Publisher:William Nickels

Chapter1: Taking Risks And Making Profits Within The Dynamic Business Environment

Section: Chapter Questions

Problem 1CE

See similar textbooks

Similar questions

1. Doris has heard that one of the company’s competitors has been visited by a health and safety inspector and she is worried that they might be next. Advise the company on Doris’s concerns regarding health and safety of their workers involved in manufacturing.2. What are the various taxes that would apply to a limited company trading manufacturing?
Suppose a company ABC is disposing tier chemical waste in the ocean and polluting the aquatic life, if the authorities regulate them to first treat the waste properly, then they have to bear the cost of that disposal process and thus their profits will decline. How can be introduced projects to profit maximization
You currently own 600 shares of JKL, Inc. JKL is an all-equity firm that has 75,000 shares of stock outstanding at a market price of $40 a share. The company’s earnings before interest and taxes are $140,000. JKL has decided to issue $1 million of debt at 8 percent interest. This debt will be used to repurchase shares of stock. If the cost of equity is 25%, the WACC is 16% and cost of debt is 10%, what will be the implied D/E ratio?
If a monopolist produces q units, she can charge 100 4q dollars/unit. The fixed cost of production is $50, and thevariable per-unit cost is $2. How can the monopolistmaximize profits? If a sales tax of $2/unit must be paid bythe monopolist, then would she increase or decreaseproduction?
The Securities and Exchange Commission today charged Ernst & Young LLP (EY) for cheating by its audit professionals on exams required to obtain and maintain Certified Public Accountant (CPA) licenses, and for withholding evidence of this misconduct from the SEC’s Enforcement Division during the Division’s investigation of the matter. 1. Analyse the extract above and critically discuss the impact of the ethical dilemmapresented in the article on Ernst and Young.
A. Sellers grant credit to customers: a. During periods of high interest rates to reduce the overall cost of capital (WACC) and to increase return on assets b. When granting credit is a low-cost addition to the value proposition relative to other alternatives c. When the seller does not want new customers d. When the seller wants to increase its marketing costs B. Which from the following list is NOT a primary cost of granting credit to customers: a. The cost of managing credit and credit collections b. Some customers will not pay c. The cost of carrying the receivables d. Advertising costs C. Matching the credit period to the buyer’s cash cycle time makes purchasing from the seller: a. Less attractive for the buyer b. Increases the elasticity of buyer demand c. Does not impact attractiveness for the buyer d. More attractive for the buyer
1. Company resources include the following: A. Human, psychological, and social B. Financial, human, and capital C. Functional, formal, and financial D. Corporate, investor, and employment 2. The Operations Department deals with: A. The production and distribution of a company's good or service B. All legal matters relating to the business C. The creation, pricing, selling, and promotion of a company's good or service D. All of these 3. Value means customers believe: A. You cannot compete on price B. They are getting a good deal for the price paid C. Both You cannot compete on price and They are getting a good deal for the price paid D. None of these
CASE JOVINA BUENAARTE PLASTIC PRODUCTS: LET ME TRY AGAIN Miss Jovina Buenaarte was thirty-six years old way back in 2003 when she first started plastic products. She made up her mind to operate this business when her friend, a plastic maker, complained about the unavailability of plastic products in the area which is of standard quality. Those that are locally máde do not conform to the requirements set by various users. With a P50,000 starting capital, Ms. Buenaarte proceeded to produce plastic products like bags and kitchen utensils. She personally supervised the mixing of the necessary materials for production. Because of good quality control, her products surpassed the requirements of buyers. Her sales increased considerably even if her selling prices are a little higher than those of competitors. The firm soon grew into a multi-million peso operation. The number of her employees increased to about a hundred with five assigned to administration and the rest either as drivers or…
Please answer A-C with the most true answer. A. Which of the following is most closely associated with return on assets? a. The cost of equity b. The proportion of debt and equity in the company’s capital structure c. The prime lending rate d. The average operating assets of the company B. Which of the following is most closely associated with expenses? a. Product (value propositions) design(s) b. Average operating assets c. Proportion of debt and equity in the company’s capital structure d. Equity risk premium C. Which of the following is most closely associated with the cost of debt? a. Non-operating expenses b. Risks specific to the company c. The long-term bond yield d. Prime lending rate
7 Which of the following is the business function that serves the purpose of providing the funds necessary for the businesses to achieve their objectives and using these funds appropriately? a) Marketing management B) accounting management NS) Accounting audit D) Financial management TO) Production management
The law allows companies in various industries to add what manyrefer to as “hidden” charges to customers’ bills. Phone bills, airlinetickets, and hotel receipts often contain charges that are difficultto identify. A traveler who stays in a hotel might be hit with a hospitality fee, a resort fee, or an automatic gratuity, to name just afew. These charges are not taxes, and although they are itemized,it is difficult for the average traveler to make sense of them. Mostpeople either don’t check their bills thoroughly or are in a hurryto check out and don’t bother to dispute the charges, which maybe only a few dollars. But these charges add up over the course ofhundreds or thousands of visitors each year, and hotels are pocketing them—legitimately.281. Do you think adding hidden charges to hotel bills is a smartmarketing strategy? Why or why not?2. Visit the website of a hotel chain with which you are familiar tolearn if it gives any information about additional surcharges.If consumers were…
FLAK Industries, Inc is a company that is engaged into the manufacturing, marketing and distribution of semiconductor materials, cable wires and other devices installed in computers, telephones and industrial machines. FLAK was incorporated by two communications engineers, Sherman Hotchner and Donn Moore in 1950, in Wyoming. All throughout the history of their business of operations, they have enjoyed a steady growth in the business. The secret to their success according to them was attributed to their very strong sense of updating themselves with the latest innovation in technological advancement. For them, technology was moving at a far better pace than any other man has imagined, and thus, they should be able to survive in the industry if they were able to get their hands on the proper equipment and training that money can buy. During the time when the United States Air Force (USAF) began opening the doors for independent contractors to bid for the very first on board computers…