1. A computer manufacturer has two divisions: one serving residential customers and one serving business customers. If an incentive conflict arises between the two divisions, how will overall company profits be affected?
a. Profits will fall.
b. Profits will rise.
c. Profits may either rise or fall.
d. The conflict has no potential to affect overall profit.

2. Joe runs the Service Division for a car dealership. The overall dealership has profit of $10 million on sales of $100 million and costs of $90 million. Joe’s division contributed $9 million in sales and $7 million in costs. If the Service Division is evaluated as a profit center, what dollar amount is most relevant to Joe?
a. $2 million
b. $7 million
c. $9 million
d. $10 million

3. As the CEO of a large multidivisional company, it falls to you to set a transfer price between your Materials Division and your Production Division. Which cost is most relevant in making your decision?
a. Average cost
b. Average avoidable cost
c. Direct cost
d. Opportunity cost

4. Which of the following organizational forms requires the strongest management oversight?
a. Profit centers
b. Functional organizations
c. M-form organizations
d. Functional and M-form organizations likely require similar oversight.

5. Which of the following actions is consistent with a manager whose compensation reflects a specific budget goal and who does not believe he can make that goal?
a. Asking a vendor to pre-ship and invoice materials for the following year
b. Discovering a “problem” in the order-taking process, thereby forcibly pushing sales into the ensuing year
c. Increasing accounting reserve estimates, leading to higher recognized expenses
d. All of the above