Organizations might desire to use one transfer pricing system designed to support international transfer pricing and another domestic transfer pricing system designed to achieve motivational objectives. Give a reason why you think organizations would not use two transfer pricing systems—one for international tax purposes and one for motivational purposes.
> The owner of a chain of fast-food restaurants has decided to use economic value added to evaluate the performance of the managers of each of the restaurants. What do you think of this idea?
> A bank is thinking of using economic value added to identify services that require improvement or elimination. What problems may the bank have in computing the economic value added of any of the services that it offers to its customers?
> The Newburg Flyers operate a major sports franchise from a building in downtown Newburg. The building was built in 1940 at a cost of $5,000,000 and is fully depreciated so that it is shown on the company’s balance sheet at a nominal value of $1. The land
> A company attempted to build a Balanced Scorecard by fitting the company’s objectives and financial and nonfinancial performance measures into the four Balanced Scorecard perspectives. Explain why this approach may not lead to a well-developed Balanced S
> Michelle Gutierrez, manager of the Components Division of FX Corporation, is considering a new investment for her division. The division has an investment base of $4,000,000 and operating income of $600,000. The new investment of $500,000 supports corpor
> Deseronto Electronics manufactures motherboards for computers. The company is divided into two divisions: manufacturing and programming. The manufacturing division makes the board, and the programming division makes the adjustments required to meet the c
> You are a government controller. A division manager being audited objects to the transfer price he is being charged by the audit group for the audit services. The manager observes, “If I have to pay for these services, I should be allowed to buy them fro
> Perform an Internet search on “close underperforming stores” or similar phrase to locate an example of a company that has closed unprofitable stores or other segments. Explain what issues the company considered in dropping the unprofitable segments and i
> Following is the information on Paragon Company’s three product lines: Required (a) Construct a segment margin statement for Paragon Company. (b) Explain why the segment margins reported for an organization unit must be interpreted car
> One of the most widely accepted and longest held beliefs is the controllability principle, which says that organization units and people should be held accountable only for things that they can control. Required (a) For any job you choose, give one exam
> You have decided to divide a factory into cost centers. How would you allocate depreciation expense on the factory building to its individual cost centers?
> For each of the following units, identify whether the most appropriate responsibility center form is a cost center, a profit center, or an investment center and why you have made that choice. a. A laboratory in a hospital b. A restaurant in a department
> You are the controller of a chain of dry-cleaning establishments. You are computing the return on investment for each outlet. Outlet A, located in a city core, reported a net profit of $130,000. The land on which Outlet Ais located was essentially rural
> Plevna Manufacturing makes and distributes small prefabricated homes in kits. The kits contain all pieces needed to assemble the home. All that is required is that the builder erect the home on a foundation. Plevna Manufacturing is organized into two div
> Organizations in the public and nonprofit sector, such as government agencies and charitable social service entities, have financial systems that budget expenses and monitor and control actual spending. Choose a government agency or nonprofit organizatio
> What does segment margin mean?
> Some people and organizations believe that the discussion of controllable and uncontrollable events is distracting in the sense that it encourages finger-pointing and an excessive preoccupation with assigning blame. These observers argue that it is more
> Bennington Home Products sells home products. It buys products for resale from suppliers all over the world. The products are organized into groups. A few examples of these groups are floor care products, kitchen products, tool products, and paper produc
> For many years, automobile companies were highly decentralized in terms of functions. The most obvious effect of this heavy decentralization of function was apparent when all the groups needed to work together to accomplish a goal. The highest order of i
> Think of an example of an organization in which it is important that the various functional areas be closely coordinated to promote the organization’s overall success. Show how performance measures that focus solely on the performance of an individual un
> Researchers have defined two extreme forms of organizations. Organic organizations are highly decentralized with few rules. Most people agree that software development companies are very organic. Mechanistic organizations are highly centralized and use m
> Many people believe that the focus of control in a successful organization reflects the strategic initiatives in the organization. For each of the following organizations, identify what you think are the three most important items assessed by the organiz
> Strathcona Paper rewards its managers on the basis of the after-tax return on investment of the assets that they manage—the higher the reported return on investment, the higher the reward. The company uses net book value to value the assets employed in t
> Give an example of a responsibility center in a university.
> What control problem does decentralization create in organizations?
> A business whose investors require a return on investment of 8% reports an income of $1 million on an investment of $20 million. What is the residual income for this business?
> Develop a Balanced Scorecard that the dean or director of your school could use to evaluate the school’s operations. Be specific and indicate the purpose of each Balanced Scorecard measure.
> A store is divided into four departments: automotive products, home products, paint, and lumber. How would you assign the building costs, such as depreciation, to each of these departments?
> Identify three responsibility centers in a fast-food restaurant and explain how they may interact.
> Suppose you are the manager of a fitness center that is one of many in a chain. Give one example of a cost that you control and one example of a cost you do not control. Why is it important in this setting to distinguish between costs that are controllab
> A home services company offers renovations, as well as heating, air conditioning, and plumbing services, to its customers. Imagine that you are in the process of computing the income for the renovations division. What problems might you encounter in comp
> Based on your understanding, which of the following does the manager of a cinema control: costs, revenues, profits, and investment?
> Many multinational companies create wholly owned subsidiaries to do business in the countries or regions where they operate. Are these wholly owned subsidiaries examples of investment centers? Explain.
> Based on your understanding of how chains are managed, would you agree or disagree that an outlet of a large department store chain should be treated as an investment center? What about the maintenance department within that outlet? What about a single d
> Give an example of a responsibility center that is properly treated as a revenue center.
> Give an example of a responsibility center that is properly treated as a cost center.
> Based on an analysis of operations, a company making sporting goods has determined that the income provided by its golf, ski, tennis, and football product lines are $3.5 million, $7.8 million, $2.6 million, and $1.7 million, respectively. The accountant
> Consider the manager of a store in a fast food restaurant chain. Construct a Balanced Scorecard to evaluate that manager’s performance.
> Give an example of why using units, rather than the value of the products produced, in the numerator of a productivity ratio may give a misleading picture of the process that produced that output.
> For-profit organizations face a requirement to earn at least a minimum-level return on investment. Some businesses rely on high ratios of income to sales; other businesses rely on high ratios of sales to investment. Give an example of each of these types
> The following information pertains to VI Division, which has $1,400,000 in investments. The company’s cost of capital is 10%. Required (a) What is the division’s return on investment? (b) What is the divisionâ&
> Division Q’s current turnover is 2 and its return on sales ratio is 0.8. The division is considering a sales promotion that would increase its current return on sales ratio by 20%, but decrease its turnover by 20%. Required (a) If the division undertake
> Eta Company would like to examine the sales margin and asset components of return on investment for three of its divisions and has accordingly prepared the following information: Required (a) Compute each division’s return on investmen
> Green Company has prepared the following information for three of its divisions: Required (a) Compute each division’s return on investment and residual income, assuming a 10% cost of capital. (b) Suppose the net book value of each divi
> Why did accountants develop the expression “soft number”?
> What is the main advantage and the main obstacle in using market-based transfer prices?
> In a fishing products company, the harvesting division catches and delivers the fish to the processing division that, in turn, delivers the processed fish to the selling division to sell to customers. How can you determine the appropriate transfer price
> How might a transfer price for logs be chosen in an organization that cuts down trees and processes the logs either in a sawmill to make lumber or in a pulp mill to make paper?
> Identify an organization with the customer solutions value proposition and suggest at least two possible measures within each of the four Balanced Scorecard perspectives.
> McCann Company has two divisions, Division C and Division D. Division C manufactures Part C82 and sells it to Division D, and also sells the same part to the outside market for $50 per unit. Division C has capacity to make 400,000 units of C82 per year.
> Give an example of a situation for which invoking the controllability principle would have a desirable motivational effect. Also give an example of a situation for which suspending the controllability principle would have a desirable motivational effect.
> Shellie’s Lawn and Gardening performs various lawn and garden maintenance activities, including lawn mowing, tree and shrub pruning, fertilizing, and treating for pests. Unlike other lawn and garden businesses in the city, Shellie also
> Baden is a city with a population of 450,000. It has a distinct organization group, called the Public Utilities Commission of the city of Baden, or Baden PUC, whose responsibility is to provide the water and electrical services to the businesses and home
> You are a senior manager responsible for overall company operations in a large courier company. Your company has 106 regional offices (terminals) scattered around the country and a main office (hub) located in the geographical center of the country. Your
> Is employee training an example of a discretionary expenditure? Why?
> What is the relationship between a demand forecast and a sales plan?
> What is a production plan? Give an example of one in a courier company.
> A student develops a spending plan for a school semester. Is this budgeting? Why?
> Identify an organization with the product leadership value proposition and suggest at least two possible measures within each of the four Balanced Scorecard perspectives.
> What is the difference between flexible and capacity-related resources?
> What is a budget?
> You are willing to donate to worthy organizations. However, you believe strongly that each request for a donation should be evaluated on the basis of its own merits. You would not feel bad in any year if you donated nothing. What approach to budgeting ar
> You are planning your expenditures for the upcoming school semester. You assume that this year’s expenditures will equal last year’s plus 2%. What approach to budgeting are you using?
> What is a periodic budget?
> What is an appropriation? Give an example of one in a university.
> What two steps are taken to reconcile the difference between actual and planned sales revenue?
> What effect will the purchase and use of cheaper, lower quality materials likely have on price and quantity (efficiency) components of both materials and labor variances?
> Why is it useful to decompose a flexible budget variance into a rate (price) variance and an efficiency (quantity) variance?
> What is a flexible budget?
> Identify an organization with the low-total-cost value proposition and suggest at least two possible measures within each of the four Balanced Scorecard perspectives.
> What is a variance? How is a dashboard warning light that indicates low oil pressure like a variance?
> What is an example of a capacity-related expenditure?
> What does a capital spending plan do?
> Are materials always a flexible resource? Why?
> Are food costs in a university residence cafeteria a variable cost or a capacity-related fixed cost? Briefly explain.
> What is a demand forecast? Why is it relevant in budgeting?
> Would a labor hiring and training plan be more important in a university that is hiring faculty members, or a municipal government office that hires casual workers to do unskilled work? Why?
> What is the difference between an operating and a financial budget?
> How does a family’s budget differ from a budget developed for an organization?
> What are two fundamental ways in which the beyond budgeting approach differs from traditional budgeting?
> Discuss whether the Balanced Scorecard strategy map approach is a performance measurement system, a management system, or both.
> What are some criticisms of the traditional budgeting model?
> “If more experienced workers work on the job than were planned when developing the labor standards, the labor efficiency variance is likely to be favorable, but the labor rate variance is likely to be unfavorable.” Do you agree with this statement? Expla
> How are first, second, and third levels of variance analysis related?
> How does analysis of reasons for variances between actual and estimated costs help managers?
> What are the similarities and differences between what-if and sensitivity analyses?
> What are three broad uses for budget information?
> What is a line of credit? How is it useful to a small organization?
> The Monteiro Manufacturing Corporation manufactures and sells folding umbrellas. The corporation’s condensed income statement for the year ended December 31, 2011, follows: Monteiro’s budget committee has estimated th
> Shadyside Insurance Company manages a medical insurance program for its clients. Employees of client firms submit claims for reimbursement of medical expenses. Shadyside processes these claims, checks them to ensure that they are covered by the claimant’
> Adams Company, a merchandising firm that sells one product, estimates it will sell 12,000 units of its product at $60 per unit in December. In November, the company prepared other information to prepare a budget for December, as shown here: â€
> Explain how a Balanced Scorecard for a nonprofit or governmental organization typically differs from for-profit Balanced Scorecards.
> In September, TEE Company, a merchandising firm that sells one product, assembled the following information and estimates to prepare a budget for October. Expected sales are 40,000 units at a price of $32 per unit. The cost of merchandise purchases is ex
> Country Club Road Nurseries grows and sells garden plants. The nursery is active between January and October each year. During January, the potting tables and equipment are prepared. The potting and seeding are done in February. In March and April, the p
> Nathaniel’s Motor Shop does major repair work on automobile engines. The major cost in the shop is the wages of the mechanics. The shop employs nine mechanics who are paid $750 each for working a 40-hour week. The workweek consists of f
> Masefield Dairy is preparing a third-quarter budget (July, August, and September) for its ice cream products. It produces five brands of ice cream, and each uses a different mix of ingredients. Its suppliers deliver ingredients just in time, provided tha
> Worthington Company makes cash (20% of total sales), credit card (50% of total sales), and account (30% of total sales) sales. Credit card sales are collected in the month following the sale, net a 3% credit card fee. This means that if the sale is $100,
> During the school year, the Homebush School band arranges concert dates in many communities. Because only part of the school’s travel expenses are covered by the concert admission fees, the band raises money to help defray its operating
> Strathfield Motel is planning its operations for the upcoming tourist season. The motel has 60 units. The following table presents the average number of daily rentals expected for each of the 12 weeks of the tourist season. The motel hires housekeeping s
> Mira Vista Planters provides reforestation services to large paper products companies. It must hire one planter for every 10,000 trees that it has contracted to plant each month. New employees are hired in the month needed, on the first day of the month.
