11 Jan geographical separation of divisional

Week 7 quiz

Question 1.1. (TCO 8) Which of the following is not a benefit associated with decentralization? (Points : 6)

Quicker decision making

Increased motivation of subunit managers

Increased competition among managers

Greater responsiveness to local needs

Question 2.2. (TCO 8) The San Jose Manufacturing Company has two divisions in Kansas—the 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 division’s 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 Holton’s 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. Jesse’s management style is best described as entrepreneurial—he 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 return on investment (ROI) was (Points : 6)

4%.

10%.

11%.

37%.

Question 5.5. (TCO 9) The primary difference between centralization and decentralization is (Points : 6)

separate offices for all managers.

geographical separation of divisional headquarters and central headquarters.

the extent of freedom of decision making by many levels of management.

the relative size of the firm.