1. Differentiate between centralized and decentralized operations.
2. Differentiate between a profit center and an investment center.
3. Weyerhaeuserdeveloped a system that assigns service department expenses to user divisions on the basis of actual services consumed by the division. Here are a number of Weyerhaeuser's activities in its central Financial Services Department:

• Payroll
• Accounts payable
• Accounts receivable
• Database administrationreport preparation

For each activity, identify an activity base that could be used to charge user divisions for service.

1. What is the major shortcoming of using income from operations as a performance measure for investment centers?
2. 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?
3. How does using the return on investment facilitate comparability between divisions of decentralized companies?
4. Why would a firm use a balanced scorecard in evaluating divisional performance?
5. What is the objective of transfer pricing?
6. When is the negotiated price approach preferred over the market price approach in setting transfer prices?
7. When using the negotiated price approach to transfer pricing, within what range should the transfer price be established?