Question 1

A(n)________ occurs when a large,typically diversified firm divests itself of a business in which it has historically been operating and the divested business operates as an independent unit.
A) harvest
B) liquidation
C) initial public offering
D) corporate spin-off

Accepted Answer

A corporate spin-off is an occurrence in which a large, typically diversified firm divests itself of a business in which it has historically been operating, and the divested business operates as an independent unit. This type of divestiture allows the parent company to focus on its core business while also enabling the spun-off business to operate and grow independently.

Question 2

________ have full profit-and-loss responsibility and typically have multiple functional managers reporting to them.
A) Division general managers
B) Corporate staff managers
C) Senior executives
D) Shared activity managers

Accepted Answer

Division general managers are in charge of a particular division within a company and have full profit-and-loss responsibility. They typically have multiple functional managers reporting to them, including marketing, sales, operations, finance, and human resources. Corporate staff managers, senior executives, and shared activity managers may also have responsibilities for these areas, but division general managers are specifically responsible for the performance of their division.

Question 3

Under which transfer pricing scheme is the transfer price set equal to the selling division's actual cost of production or set equal to the cost of production if the selling division were operating at maximum efficiency?
A) Exchange autonomy
B) Mandated full cost
C) Mandated market based
D) Dual pricing

Accepted Answer

The answer of Under which transfer pricing scheme is the...

Question 4

If a division of a multidivisional firm has adjusted accounting earnings of $10 million,a weighted average cost of capital of 10% and a total capital employed by the division of $50 million,the division has an EVA of
A) $25 million.
B) $5 million.
C) $15 million.
D) $20 million.

Accepted Answer

EVA = Adjusted Accounting Earnings - (Weighted Average Cost of Capital x Total Capital Employed)
EVA = $10 million - (10% x $50 million)
EVA = $10 million - $5 million
EVA = $5 million

Question 5

The divided loyalties that divisional staff managers have between corporate staff managers and functional managers is potentially the most problematic in ________ staff functions.
A) marketing
B) accounting
C) logistics
D) production

Accepted Answer

The answer of The divided loyalties that divisional staff managers...

Question 6

Transfer pricing should equal
A) selling price.
B) opportunity cost.
C) total cost.
D) marginal cost.

Accepted Answer

Transfer pricing should equal opportunity cost as it reflects the cost of using internal resources to produce goods or services that could be sold in an external market. This ensures that the transfer price is fair and reflects the true economic value of the goods or services being transferred between internal divisions or subsidiaries.

Question 7

When compared to the strategy implementation responsibilities of senior executives in U-form organizations,when implementing strategy,division general managers in M-form organizations
A) tend to have to deal with less conflict.
B) have to compete for external capital funding.
C) tend to have to deal with substantially more conflict.
D) must cooperate with other divisions to exploit corporate economies of scope.

Accepted Answer

Division general managers in M-form organizations must cooperate with other divisions to exploit corporate economies of scope. M-form organizations are characterized by multiple product lines under a single corporate umbrella, and each division operates somewhat independently. Therefore, division general managers must work together to achieve overall corporate objectives and take advantage of economies of scope. This often requires negotiation and cooperation, which can lead to conflict. However, U-form organizations have a more centralized structure, and senior executives have more direct control over all aspects of the organization. Therefore, they may have less conflict when implementing strategy. Option A and B are incorrect because they are not relevant to the comparison being made.

Question 8

In an M-form organization,the management of day-to-day operations is delegated to
A) divisional general managers and corporate staff managers.
B) corporate staff managers and functional managers who report to corporate staff managers.
C) divisional general managers and functional managers who report to division general managers.
D) the board of directors and corporate staff managers who report to the board of directors.

Accepted Answer

In an M-form organization, the company is divided into smaller functional units called divisions, each headed by a divisional general manager. These managers are responsible for the day-to-day operations of their divisions and have functional managers reporting to them. Therefore, the management of day-to-day operations is delegated to divisional general managers and functional managers who report to division general managers. Corporate staff managers may provide support and guidance but do not typically handle day-to-day operations, and the board of directors is not involved in the day-to-day operations of the company.

Question 9

When the cost of services from a shared activity is ________ the cost of comparable services provided by a division itself or by an outside supplier than the division,general managers have a strong incentive ________.
A) less than; to use the services of shared activities
B) greater than; to use the services of shared activities
C) less than; to use the services of an outside supplier
D) equal to; to use the services of an outside supplier

Accepted Answer

When the cost of services from a shared activity is less than the cost of comparable services provided by a division itself or by an outside supplier than the division, general managers have a strong incentive to use the services of shared activities. This is because using shared activities will result in cost savings and lead to better efficiency for the division.

Question 10

When adjusting a division's accounting earnings for use in the economic value added calculations,R&D spending is usually
A) subtracted from the division's performance.
B) depreciated over the life of the average R&D projected and subtracted from the division's performance.
C) amortized over the life of the average R&D projected and added back to the division's performance.
D) added back into the division's performance.

Accepted Answer

The answer of When adjusting a division's accounting earnings for...

Question 11

A ________ exists when a large,typically diversified firm divests itself of a business in which it has historically been operating and the divested business operates as an independent entity.
A) corporate spin-off
B) franchise
C) division
D) subsidiary

Accepted Answer

A corporate spin-off is the process of a large, diversified firm divesting itself of a business unit creating a new, independent company that can operate on its own. This allows the parent company to focus on its core competencies, and the divested business can operate as a separate entity, possibly with its own management team, board of directors, and shareholders. The other options (B, C, and D) do not match the described scenario.

Question 12

Rather than having profit-and-loss responsibilities,________ are assigned a budget and manage their operations to that budget.
A) profit centers
B) cost centers
C) operation centers
D) functional centers

Accepted Answer

Cost centers are assigned a budget and manage their operations to that budget. They do not have profit-and-loss responsibilities, unlike profit centers. Operation centers and functional centers are not standard terms used in management accounting.

Question 13

Which of the following is a weakness of using a hurdle rate as a standard of evaluating the performance of a division?
A) The process is time-consuming.
B) The process is fraught with political intrigue.
C) This approach lets other firms determine what is and what is not excellent performance for a division within a diversified firm.
D) The use of such a single standard ignores important differences in performance that might exist across divisions.

Accepted Answer

The use of a hurdle rate as a single standard for evaluating division performance ignores important differences in performance that might exist across divisions. Therefore, it is a weakness of this approach. Options A and B are not relevant to the weakness of using a hurdle rate as a standard of evaluating the performance of a division. Option C is incorrect as the hurdle rate is determined by the firm's management, not other firms.

Question 14

In a multidivisional company,one division "sells" its products or services to a second division for a(n)________,which is set by a firm's corporate management to accomplish corporate objectives.
A) allocation price
B) transfer cost
C) market price
D) transfer price

Accepted Answer

The term used for the price at which one division of a multidivisional company sells its products or services to another division is called transfer price. It is set by the corporate management to achieve corporate objectives such as maximizing overall profits or balancing the performance of divisions. Other options like allocation price and market price are not typically used for such internal transactions, while transfer cost is not the correct term for the price at which goods or services are transferred between two divisions of the same company.

Question 15

Most accounting measures of divisional performance have a common limitation in that they
A) have a short-term bias.
B) are costly to implement.
C) are difficult to interpret.
D) have a long-term bias.

Accepted Answer

Most accounting measures of divisional performance tend to focus on short-term performance, such as quarterly profits, rather than long-term success. This can lead to a short-term bias and the neglect of investments that may not show immediate returns.

Question 16

In ________ budgeting,corporate executives create a list of all capital allocation requests from divisions in a firm,rank them from "most important" to "least important" and then fund all the projects a firm can afford,given the amount of capital that is available and no project receives funding simply because it was funded in the past.
A) cost-plus
B) activity-based
C) zero-based
D) revenue-based

Accepted Answer

This is describing the zero-based budgeting approach, where all requests must be justified from scratch each year rather than simply continuing to fund projects or departments at the same level as in the past.

Question 17

A business unit within a diversified firm may be sold to the public through a(n)
A) corporate spin-off.
B) liquidation.
C) IPO.
D) harvest strategy.

Accepted Answer

An IPO (initial public offering) involves selling shares of a company to the public for the first time. This is a common method for a business unit within a diversified firm to become a separate, publicly-traded company. Corporate spin-offs involve creating a new, independent company by divesting a portion of an existing company, but this may not necessarily involve selling shares to the public. Liquidation involves selling off or terminating assets and operations, which may not be the desired outcome for a profitable business unit. A harvest strategy involves maximizing short-term cash flows from an existing business unit, but this does not necessarily involve selling shares to the public.

Question 18

________ is an economic measure of divisional performance.
A) Return on assets
B) Return on a division's sales
C) Economic value added
D) A division's growth rate

Accepted Answer

Economic value added (EVA) is a popular economic measure of divisional performance. It measures the amount of value created by a division after considering the cost of all invested resources. EVA takes into account both the profitability and efficiency of a division, making it a more comprehensive measure than other financial ratios like return on assets or sales. EVA is a popular tool for evaluating whether a division is creating value for the company or not.

Question 19

Which of the following statements regarding CEO compensation is accurate?
A) Differences in CEO cash compensation are very responsive to differences in firm performance.
B) If a substantial percentage of a CEO's compensation comes in the form of stock and stock options in the firm,changes in compensation are closely linked with changes in firm performance.
C) If a substantial percentage of a CEO's compensation comes in the form of stock and stock options in the firm,changes in compensation are not closely linked with changes in firm performance.
D) If a substantial percentage of a CEO's compensation comes in the form of salary,changes in compensation can be expected to be closely linked with changes in firm performance.

Accepted Answer

If a substantial percentage of a CEO's compensation comes in the form of stock and stock options in the firm, changes in compensation are closely linked with changes in firm performance. This is because changes in the company's stock price and market value will directly affect the value of the CEO's compensation package.

Question 20

IPO stands for
A) internal product offering.
B) internal price orders.
C) international product orders.
D) initial public offering.

Accepted Answer

IPO stands for "initial public offering," which is the first time a company's shares are offered to the public. It is an important event for a company as it allows them to raise capital and become publicly traded. Option A, B, and C are not relevant to the term IPO.

Quiz 8: Organizing to Implement Corporate Diversification

A(n) ________ occurs when a large,typically diversified firm divests itself of a business in which it has historically been operating and the divested business operates as an independent unit.

________ have full profit-and-loss responsibility and typically have multiple functional managers reporting to them.

Under which transfer pricing scheme is the transfer price set equal to the selling division's actual cost of production or set equal to the cost of production if the selling division were operating at maximum efficiency?

If a division of a multidivisional firm has adjusted accounting earnings of $10 million,a weighted average cost of capital of 10% and a total capital employed by the division of $50 million,the division has an EVA of

The divided loyalties that divisional staff managers have between corporate staff managers and functional managers is potentially the most problematic in ________ staff functions.

Transfer pricing should equal

When compared to the strategy implementation responsibilities of senior executives in U-form organizations,when implementing strategy,division general managers in M-form organizations

In an M-form organization,the management of day-to-day operations is delegated to

When the cost of services from a shared activity is the cost of comparable services provided by a division itself or by an outside supplier than the division,general managers have a strong incentive .

When adjusting a division's accounting earnings for use in the economic value added calculations,R&D spending is usually

A ________ exists when a large,typically diversified firm divests itself of a business in which it has historically been operating and the divested business operates as an independent entity.

Rather than having profit-and-loss responsibilities,________ are assigned a budget and manage their operations to that budget.

Which of the following is a weakness of using a hurdle rate as a standard of evaluating the performance of a division?

In a multidivisional company,one division "sells" its products or services to a second division for a(n) ________,which is set by a firm's corporate management to accomplish corporate objectives.

Most accounting measures of divisional performance have a common limitation in that they

A business unit within a diversified firm may be sold to the public through a(n)

________ is an economic measure of divisional performance.

Which of the following statements regarding CEO compensation is accurate?

IPO stands for