A well thought-out organizational design causes goal congruence and results in an organization

being able to work together to accomplish a strategy. 

Which of these is/are TRUE?
I. Achieving goal congruence is more significant in a decentralized organization than in a
centralized one.  
II. The sales price variance is the difference between the actual selling price and the planned
selling price multiplied by actual units sold. 
III. Market-based transfer prices are best for the selling division operating significantly below
capacity.
a) I, II and III
b) II only
c) I and III only
d) I only
e) I and II only

Criteria for evaluating performance should be carefully selected because

a) they must be in accordance with government regulations
b) Stockholders inquire about them at annual meetings.
c) A manager's behavior can be affected by the criteria used to judge his or her
performance.
d) stakeholders may not agree with the criteria

Advantages of decentralization include all of the following except

a) divisional management is able to react to changing market conditions more rapidly than
top management
b) decentralization can motivate divisional managers
c) decentralization permits divisional management to concentrate on company-wide
problems and long-range planning
d) divisional management is a source of personnel for promotion to top management
positions

One method in which a responsibility center is evaluated is through the use of residual income
approach. Residual income is the
a) Contribution margin of an investment center, plus the imputed interest on the invested
capital used by the center.
b) Operating income of an investment center, plus the imputed interest on the invested
capital used by the center.
c) Operating income of an investment center, less the imputed interest on the invested
capital used by the center.
d) Contribution margin of an investment center, less the imputed interest on the invested
capital used by the center.

Consider these statements about responsibility accounting. Which of the following is false?
 
I. The sales volume variance is the difference between actual and planned unit sales multiplied
by the actual contribution margin per unit.
 
II. The principle of controllability is less important to the internal reporting for a centralized
company than for a decentralized one.
 
III. Allocated costs are less important to the internal reporting for a centralized company than for
a decentralized company.
a) I, II and III
b) II and III only
c) I and III only
d) II only
e) III only

A negotiated transfer price is a transfer price that is set up when

a) the two transacting divisions agree to use a cost basis for transfer pricing within the
bargaining range
b) a ready market price is not available and the two sides must come up with an
agreeable price
c) the requirements of transfer pricing formula are not met
d) two transacting divisions - the selling and purchasing segments will agree on a price and
the difference between the two sides is absorbed by the home office

A selling division produces components for a purchasing division that is considering accepting a
special order for the products it produces. The selling division has significant available capacity.
The minimum transfer price the selling division would be willing to accept is the
a) selling division’s variable costs
b) selling division’s variable costs plus contribution margin lost
c) transfer price that would allow the buying division to cover its incremental cost
d) buying division’s outside purchase price

Which of the following is critically important for a responsibility accounting system to be

effective?
a) The details on the performance reports for individual managers should add up to the
totals on the report to their supervisor.
b) Each employee should know the criteria for the evaluation of the responsibility center
and should receive a separate performance report
c) Each manager should know the criteria used for evaluating his or her performance.
d) Service department costs should be allocated to the operating departments that use the
service.
Decentralization is the process by which the activities of an organization, particularly those
regarding planning and decision making, are distributed or delegated away from a central,
authoritative location or group. In a company with a decentralized approach to responsibility
accounting, lower-level managers typically
a) both make and implement key management decisions
b) make key management decisions
c) review the outcomes of key management decisions only
d) implement key management decisions

A transfer price is the price charged by one segment of the company for goods or services
provided to another segment.  The ideal transfer price to use to transfer the costs of a service
center is
a) the transfer price that ensures the achievement of the selling segment's strategic
objectives
b) One that is based on budgeted total cost.
c) the price charged by an outside company for the same service
d) the transfer price that ensures the achievement of organization's strategic objectives

The C Division of R Corp. has the following information for the first year of operation:
Average operating assets                                                P2, 400,000
Required rate of return                                                              15%
Residual income                                                                    P72, 000
Next year, the division would like to invest in a project that will require            P 150,000
investment.  To maintain the same divisional return on investment, how much income would
have to be produced by the new project? 27,000
The C Division of R Corporation produces "bales" of steel wire that are used in various
commercial applications. The bales sell for an average of P20 each and The C Division has the
capacity to produce 10,000 bales per month. The Consumer Division of R Corporation uses
approximately 2,000 bales of steel wire each month in its production of various appliances. The
operating information for the C Division at its present level of operations (8,000 bales per
month) follows:
 
 Sales (all external) P160,000
Variable costs per bale:  
Production P5
Selling 2
G&A 3
Fixed costs per bale (based on a 10,000 unit capacity):  
Production P2
Selling 3
G&A 4
 
The Consumer Division currently pays P15 per bale for wire obtained from its external supplier.
If 2,000 bales are transferred in one month to the Consumer Division at P10 per bale, what
would be the profit/loss of the C Division?  10,000 loss
 Segment C generated sales revenues of P400, 000 and variable operating expenses of P180, 000.
The total fixed costs and expenses were P 200,000. Eighty percent of fixed costs and expenses
are controlled by others. The common fixed costs were P25, 000 and investments in operating
assets amounts to P 375,000. What was Segment C's return on investment? 48%
The following selected data pertain to the C division of R Corp. for last year:
 
Sales Php500,000
Average operating assets Php300,000
Residual income Php40,000
Asset Turnover 1.67
Minimum required return 20%
If the division's profit margin will decrease by 20%, the ROI will
Decrease by 20%
 
Assume that C Division has a product that can be sold either to outside customers on an
intermediate market or to F Division of the same company for use in its production process. The
managers of the division are evaluated based on their divisional profits.
C Division:
Capacity in units:                             200,000
Number of units being sold on the intermediate market:     200,000
Selling price per unit on the intermediate market:                  P90
Variables costs per unit
 (Including P3 of avoidable selling expense for internal sales):  70
Fixed costs per unit (based on capacity):                            13
 
F Division:                                                                                                           
Number of units needed for production:              40,000
Purchase price per unit now being paid to an outside supplier:    P86
The appropriate transfer price should be 87
C Division of R Company had the following results in June.
                    
                            Planned       Actual
                            -------      -------
     Sales       :          P80, 000      P78, 900
     Variable costs:   50,000       48,500
                            -------      -------
     Contribution margin:  P30, 000      P30, 400
                            
 
     Planned sales were 10,000 units; actual sales were 9,700 units. The sales price variance is
1,000 F.
 R Corporation is comprised of two divisions: X and Y. X currently produces and sells a gear
assembly used by the automotive industry in electric window assemblies. X is currently selling
all of the units it can produce (25,000 per year) to external customers for P25 per unit. At this
level of activity, X's per unit costs are:
 
Variable:  
     Production P7
     SG&A 2
Fixed:  
     Production 6
     SG&A 5
 
Y Division wants to purchase 5,000 gear assemblies per year from X Division. Y Division
currently purchases these units from an outside vendor at P22 each.
What will be the effect on overall corporate profits if the two divisions agree to an internal
transfer of 5,000 units at P 9.00?  15,000 decrease
The C Division of R Products Co. has developed a wind generator that requires a special "S" ball
bearing. The B Division of R Products Co. has the capability to produce such a ball bearing.
 
Unfortunately, the B Division is operating at capacity and will need to reduce production of
another existing product, the "T" bearing, by 1,000 units per month to provide the 800 "S"
bearings needed each month by the C Division. The "T" bearing currently sells for P50 per unit.
Variable costs incurred to produce the "T" bearing are P30 per unit; variable costs to produce the
new "S" bearing would be P60 per unit.
 
The C Division has found an external supplier that would furnish the needed "S" bearings at
P100 per unit. Assume that both the C Division and B Division are independent, autonomous
investment centers.
What is the minimum price that B Division would consider to produce the "S" bearing?  85
The C Division of R Corp. makes and sells only one product. Annual data on the Division's
single product follow:
 
Unit selling price P50
Unit variable cost P32
 Total fixed costs P160,000
Average operating assets P750,000
Minimum required rate of return 13%
 
Assume that C Division desires a residual income of P66, 500, how many units of this product
must be sold by the division? 18,000 units
 The following are available for Division C of R Company:
 
Project Income Investment
A P33,000 P300,000
B 56,250 750,000
C 27,500 550,000
 
 
Division’s current ROI is 10 percent and has sufficient capital available.   R Company’s
minimum required rate of return is 7 percent.
If this company is striving for goal congruence, which project(s) would the division manager
accept? A and B only