Multiple Choice Questions
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 definitely fall.
b. Profits will definitely rise.
c. Profits may fall, but it depends on the nature of the conflict.
d. The conflict has no potential to affect overall profit.

2. Which type of organizational form has the benefit of closer coordination to serve a particular product or geographic area?
a. Profit centers.
b. Functional organizations.
c. M-form organizations.
d. Functional and M-form organizations have the same benefits.

3. 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

4. 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

5. Why might it be a bad idea to have corporate headquarters set transfer prices?
a. Corporate managers may not have good information about the best transfer price.
b. It may lead division managers to provide misinformation about costs related to the transfer price.
c. It distracts corporate managers from concentrating on larger problems.
d. All of the above

6. Transfer prices should be set at
a. marginal cost of the selling division plus a reasonable profit amount.
b. marginal cost of the selling division unless it is evaluated as a profit center.
c. the opportunity cost of the asset being transferred.
d. at whatever price is negotiated between the selling and buying divisions.

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

8. If you were a manager of a cost center, which of the following areas would be of most interest to you?
a. Capturing potential economies of scale.
b. Increasing the quality of your product.
c. Hiring more marketing staff to figure out how to increase prices.
d. Adding additional features to your product.

9. Which of the following actions is consistent with a manager whose compensation depends on meeting a 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

10. One of the basic functions of the budgeting process is
a. Assigning decision rights.
b. Transferring information.
c. Evaluating managerial performance.
d. Implementing structural change.

  • CreatedFebruary 13, 2014
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