Question 1.1. (TCO 8) In a decentralized organization in which subunits may buy goods from one another, the transfer-pricing system should be designed primarily to (Points : 6)

allow subunit managers to buy from external parties. increase the consolidated value of inventory. minimize the degree of autonomy of subunit managers. evaluate performance of individual subunits and their managers.

Question 2.2. (TCO 8) The San Jose Manufacturing Company has two divisions in Kansasthe Holton Division and the Derby Division. Currently, Derby buys a part (10,000 units) from Holton for $16 per unit. Holton has purchased new equipment and wants to increase the price to Derby to $18 per unit. The controller of Derby claims that she cannot afford to go that high, because it will decrease the divisions profit to near zero. Derby can buy the part from an outside supplier for $16 per unit. The incremental costs per unit that San Jose incurs to produce each unit are Holtons variable cost of $12. Fixed costs per unit to Holton with the recent purchase of equipment are $5. If Holton has no alternative uses for its facilities and the external supplier drops the price to $11 per unit, what should be done from the point of view of Company as a whole/Derby Division only? (Points : 6)

Buy from the Holton Division/Buy from the external supplier. Buy from the external supplier/Buy from Holton Division. Buy from external supplier/ Buy from external supplier. Buy from Holton Division/ Buy from Holton Division.

Question 3.3. (TCO 8) Jesse James is a manager at a local bank. Jesses management style is best described as entrepreneurialhe is risk neutral. Wyonia Tyus is a customer service representative who reports to Jesse. Wyonia is risk averse. In designing a compensation package for Jesse and Wyonia, which type of compensation arrangement should be emphasized more? Jesse James/Wyonia Tyus (Points : 6)

Performance-based/Performance-based Performance-based/Straight salary Straight salary/Performance-based Straight salary/Straight salary

Question 4.4.

(TCO 8) Information pertaining to the Woodsy Creek Division of MO Corporation for 20XX follows.

Revenues	$950,000
Variable costs	575,000
Traceable fixed costs	336,500
Average invested capital	350,000
Imputed interest rate	10%

The residual income was

(Points : 6)

$3,500. $35,000. $38,500. $0.

Question 5.5. (TCO 9) Which of the following is likely to be a disadvantage of decentralization? (Points : 6)

Lower-level employees will develop less rapidly than in a centralized organization. Lower-level employees will complain about not having enough to do. Top management will have less time available to devote to unique problems. Lower-level managers may make conflicting decisions.