Chapter 24: Q25RQ (page 1355)
What is a transfer price?
Answer
Transfer price is the consideration amount paid by one unit of an organization to another unit.
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Decentralization divides company operations into various reporting units. Most decentralized subunits can be described as one of four different types of responsibility centers.
Requirements
1. Explain why companies decentralize. Describe some typical methods of decentralization.
2. List the four most common types of responsibility centers, and describe their responsibilities.
Consider the following key performance indicators, and classify each according to the balanced scorecard perspective it addresses. Choose from financial perspective, customer perspective, internal business perspective, or learning and growth perspective.
a. Number of employee suggestions implemented
b. Revenue growth
c. Number of on-time deliveries
d. Percentage of sales force with access to real-time inventory levels
e. Customer satisfaction ratings
f. Number of defects found during manufacturing
g. Number of warranty claims
h. Return on investment
i. Variable cost per unit
j. Percentage of market share
k. Number of hours of employee training
l. Number of new products developed
m. Yield rate (number of units produced per hour)
n. Average repair time
o. Employee satisfaction
p. Number of repeat customers
What is a key performance indicator?
What are the goals of a performance evaluation system?
One subunit of Harris Sports Company had the following financial results last month:
Harris—Subunit X Actual Results Flexible Budget Flexible Budget Variance (F or U) % Variance (F or U)
Direct Materials \( 28,000 \) 25,900
Direct Labor 13,000 13,800
Indirect Labor 26,400 23,100
Utilities 12,300 11,300
Depreciation 25,000 25,000
Repairs and Maintenance 4,600 5,600
Total \( 109,300 \) 104,700
Requirements
1. Complete the performance evaluation report for this subunit. Enter the variance percent as a percentage of the budgeted amount rounded to two decimal places.
2. Based on the data presented, what type of responsibility center is this subunit?
3. Which items should be investigated if part of management’s decision criteria is to investigate all variances exceeding $2,500 or 10%?
4. Should only unfavorable variances be investigated? Explain.
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