Gen Combo Fundamentals Of Cost Accounting; Connect Access Card
6th Edition
ISBN: 9781260848700
Author: William N. Lanen Professor, Shannon Anderson Associate Professor, Michael W Maher
Publisher: McGraw-Hill Education
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Chapter 14, Problem 11CADQ
To determine
Comment on the given statement.
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Check out a sample textbook solutionStudents have asked these similar questions
Differentiate between a cost center, profit center, and investment center.
What is the major shortcoming of using operating income as a performance measure for investment centers?
Why should the factors under the control of the investment center manager (revenues, expenses, and invested assets) be considered in computing the return on investment?
In a decentralized company in which the divisions are organized as investment centers, how could a division be considered the least profitable, even though it earned the largest amount of operating income?
Does the concept of decentralization--top managers allowing middle and lower-level managers to make decisions--have application to God's plan for us? In other words, does God make decisions for us or does he allow us to make decisions in our own lives? Is this good or bad?
How does using the return on investment facilitate comparability between divisions of decentralized companies?
Image attached below.
Questions
1. Explain how the manager if each division will react to the opportunity if their performance is evaluated against residual income.
2. Explain how the manager of each division will react to the opportunity if their performance is evaluated against ROI.
3. Are ROI and residual income appropriate for evaluating the performance of the divisional managers.
4. What additional measures could be used for performance evaluation.
Which of the following describes the goal that should be pursued when setting transfer prices?
Allow top management to become actively involved when calculating the proper dollar amounts.
Minimize opportunity costs.
Maximize profits of the buying division.
Establish incentives for autonomous division managers to make decisions that are in the overall organization's best interests (i.e., goal congruence).
Maximize profits of the selling division.
Chapter 14 Solutions
Gen Combo Fundamentals Of Cost Accounting; Connect Access Card
Ch. 14 - What are the advantages of divisional income as a...Ch. 14 - How is divisional income like income computed for...Ch. 14 - How is return on investment (ROI) computed?Ch. 14 - What are the advantages of using an ROI-type...Ch. 14 - How can ratios, such as ROI, be used for control...Ch. 14 - How does residual income differ from ROI?Ch. 14 - How does EVA differ from residual income?Ch. 14 - What impact does the use of gross book value or...Ch. 14 - What are the dangers of using only business unit...Ch. 14 - A company prepares the master budget by taking...
Ch. 14 - Prob. 11CADQCh. 14 - What problems might there be if the same methods...Ch. 14 - Prob. 13CADQCh. 14 - The chapter identified some problems with ROI-type...Ch. 14 - Failure to invest in projects is not a problem...Ch. 14 - How would you respond to the following comment?...Ch. 14 - Prob. 17CADQCh. 14 - Prob. 18CADQCh. 14 - Prob. 19CADQCh. 14 - Prob. 20CADQCh. 14 - Prob. 21CADQCh. 14 - Compute Divisional Income Arlington Clothing,...Ch. 14 - Compute Divisional Income Refer to Exercise 14-22....Ch. 14 - Computing Divisional Income: Incomplete...Ch. 14 - Compute RI and ROI The Campus Division of...Ch. 14 - Prob. 26ECh. 14 - Compare Alternative Measures of Division...Ch. 14 - Comparing Business Units Using ROI Back Mountain...Ch. 14 - Comparing Business Units Using Residual Income...Ch. 14 - Prob. 30ECh. 14 - Universal Electronics, Inc. (UEI), which started...Ch. 14 - Comparing Business Units Using Residual...Ch. 14 - Comparing Business Units Using Economic Value...Ch. 14 - Impact of New Asset on Performance Measures The...Ch. 14 - Refer to the data in Exercise 14–34. The division...Ch. 14 - Refer to the information in Exercises 14–34 and...Ch. 14 - Impact of an Asset Disposal on Performance...Ch. 14 - Impact of an Asset Disposal on Performance...Ch. 14 - Compare Historical Cost, Net Book Value to Gross...Ch. 14 - Prob. 40ECh. 14 - Prob. 41ECh. 14 - Effects of Current Cost on Performance...Ch. 14 - Comparing Business Units Using Divisional Income,...Ch. 14 - Comparing Business Units Using Economic Value...Ch. 14 - Prob. 45PCh. 14 - Equipment Replacement and Performance Measures...Ch. 14 - Prob. 47PCh. 14 - Prob. 48PCh. 14 - Prob. 49PCh. 14 - Prob. 50PCh. 14 - Prob. 51PCh. 14 - Evaluate Performance Evaluation System: Behavioral...Ch. 14 - ROI, EVA, and Different Asset Bases Hys is a...Ch. 14 - Economic Value Added Bisbee Health Products...Ch. 14 - Prob. 55PCh. 14 - Prob. 56PCh. 14 - Refer to the information in Exercise 14-39. Assume...Ch. 14 - Refer to the information in Exercise 14-42. Assume...
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Similar questions
- Which of the following is not an objective or potential advantage of transfer pricing? Â A)Â A realistic measurement of performance of each division B)Â A reduction in goal congruence between divisions and overall company C)Â More autonomy and motivation for divisional managers D)Â The maximisation of company profitsarrow_forwardDiscuss how the behavior of division managers is likely to be affected by the use of: a. Return on Investment as a Performance Measure b. Residual Income as a performance measure (CMA Adapted)arrow_forwardWhat transfer price, or range of prices, would ensure goal congruence among the division managers? Show your calculations.arrow_forward
- Differentiate between centralized and decentralized operations. In a decentralized company in which the divisions are organized as investment centers, how could a division be considered the least profitable even though it earned the largest amount of income from operations? Why would a firm use a balanced scorecard in evaluating divisional performance?arrow_forwardExplain how EVA is a better measure for divisional performance evaluation, as compared to Residual Income(RI) and ROIarrow_forwardWhich of the following is a good choice for a manager interested in fostering the cooperation of two division heads? Group of answer choices Providing a bonus based on company performance Providing a bonus based on division performancearrow_forward
- Discuss how using the rate of return on investment (ROI), as an evaluation tool, helps facilitate comparabilitybetween the various departments or divisions of a business?arrow_forwardCalculate return on investment (ROI) for each division using operating income as a measure of income and total assets as a measure of investment.arrow_forwardImage attached below. Questions 1. Compute the current ROI for each division. 2. Compute the current residual income for each division. 3. Determine the effects after adding the new project to each division's ROI and residual income. 4. Explain how the manager of each division will react to the opportunity if their performance is evaluated against residual income. 5. Explain how the manager of each division will react to the opportunity if their performance is evaluated against ROI. 6. Are ROI and residual income appropriate for evaluating the performance if the divisional managers 7. What additional measures could be used for performance evaluation.arrow_forward
- How do you think the division managers will receive the new proposal? What are the strengths and weaknesses of Carpenter’s proposal relative to the existing single cost-pool method?arrow_forwardDescribe how the dual-rate method is useful to division managers in decision makingarrow_forwardCompute the return on investment for each divisionarrow_forward
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