Financial And Managerial Accounting
15th Edition
ISBN: 9781337902663
Author: WARREN, Carl S.
Publisher: Cengage Learning,
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Chapter 24, Problem 6DQ
To determine
Describe the use of ROI in comparing the profitability between the divisions of decentralized companies.
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Which of the following is not an objective or potential advantage of transfer pricing?
A) A realistic measurement of performance of each division
B) A reduction in goal congruence between divisions and overall company
C) More autonomy and motivation for divisional managers
D) The maximisation of company profits
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?
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?
Chapter 24 Solutions
Financial And Managerial Accounting
Ch. 24 - Differentiate between centralized and...Ch. 24 - Differentiate between a profit center and an...Ch. 24 - Weyerhaeuser Co. (WY) developed a system that...Ch. 24 - What is the major shortcoming of using operating...Ch. 24 - In a decentralized company in which the divisions...Ch. 24 - Prob. 6DQCh. 24 - (a) Explain how return on investment might lead a...Ch. 24 - Prob. 8DQCh. 24 - When is the negotiated price approach preferred...Ch. 24 - Prob. 10DQ
Ch. 24 - Budgetary performance for cost center Vinton...Ch. 24 - Support department allocations The centralized...Ch. 24 - Prob. 3BECh. 24 - Profit margin, investment turnover, and ROI Briggs...Ch. 24 - Residual income Obj. The Commercial Division of...Ch. 24 - Transfer pricing The materials used by the...Ch. 24 - Budget performance reports for cost centers...Ch. 24 - The following data were summarized from the...Ch. 24 - Prob. 3ECh. 24 - Prob. 4ECh. 24 - Service department charges In divisional income...Ch. 24 - Varney Corporation, a manufacturer of electronics...Ch. 24 - Horton Technology has two divisions, Consumer and...Ch. 24 - Rocky Mountain Airlines Inc. has two divisions...Ch. 24 - Championship Sports Inc. operates two divisionsthe...Ch. 24 - The operating income and the amount of invested...Ch. 24 - The operating income and the amount of invested...Ch. 24 - Prob. 12ECh. 24 - The condensed income statement for the Consumer...Ch. 24 - Prob. 14ECh. 24 - Data are presented in the following table of...Ch. 24 - Prob. 16ECh. 24 - Materials used by the Instrument Division of...Ch. 24 - Prob. 18ECh. 24 - GHT Tech Inc. sells electronics over the Internet....Ch. 24 - Profit center responsibility reporting for a...Ch. 24 - Divisional income statements and return on...Ch. 24 - Effect of proposals on divisional performance A...Ch. 24 - Divisional performance analysis and evaluation The...Ch. 24 - Prob. 6PACh. 24 - Budget performance report for a cost center The...Ch. 24 - Profit center responsibility reporting for a...Ch. 24 - Divisional income statements and return on...Ch. 24 - Effect of proposals on divisional performance A...Ch. 24 - Prob. 5PBCh. 24 - Prob. 6PBCh. 24 - Kelly Kitchens operates both franchised and...Ch. 24 - Panera Bread Company (PNRA) operates over 2,000...Ch. 24 - Papa Johns International, Inc. (PZZA), operates...Ch. 24 - Panera Bread Company (PNRA) operates over 2,000...Ch. 24 - McDonalds Corporation (MCD) operates company-owned...Ch. 24 - Prob. 1TIFCh. 24 - Prob. 2TIFCh. 24 - Communication The Norse Division of Gridiron...Ch. 24 - The three divisions of Yummy Foods are Snack...Ch. 24 - Last Resort Industries Inc. is a privately held...Ch. 24 - Sara Bellows, manager of the telecommunication...Ch. 24 - Most firms allocate corporate and other support...Ch. 24 - Prob. 3CMACh. 24 - Prob. 4CMA
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- How does using the return on investment facilitate comparability between divisions of decentralized companies?arrow_forwardHow does using the return on investment facilitate comparability between divisions of decentralized companies?arrow_forward(a) Explain how return on investment might lead a divisional manager to reject new investments that could be profitable for the company as a whole. (b) How can this disadvantage be overcome?arrow_forward
- Explain the benefits of a residual income structure within an investment center framework. It may help to think of an example using an existing company.arrow_forwardWhat is the major shortcoming of using operating income as a performance measure for investment centers?arrow_forwardWhat is customer value? How is customer value related to a cost leadership strategy? To a differentiation strategy? To strategic positioning?arrow_forward
- Which of the following is a disadvantage of outsourcing? A. freeing up capacity B. freeing up capital C. transferring production and technology risks D. limiting ability to upsize or downsize productionarrow_forwardDifferentiate 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_forwardWhich 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.arrow_forward
- Discuss the types of transfer pricing policy available to a company and explain why a company needs to consider the motivational impact on the managers of its divisions when setting the transfer price.arrow_forwardIn a business where the divisions are organized as investment centers, discuss how a division that generates the largest dollar amount of profit among all divisions, could be considered the least profitableamong all divisions?arrow_forwardWhat transfer price, or range of prices, would ensure goal congruence among the division managers? Show your calculations.arrow_forward
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