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devry acct349 week 7 homework




Question;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?;\


Paper#38666 | Written in 18-Jul-2015

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