Deck 20: Getting Divisions to Work in the Firms Best Interest

Question 1

​All of the following can cause conflict between divisions EXCEPT

A)​Coordination between divisions does not benefit all divisions equally
B)managers of cost centers care too little about enhancing revenues
C)managers are rewarded only for actions that profit their own division generates,regardless of the effects on other divisions
D)​corporate executives cannot tell when one divisional manager's decisions are appropriate or not

Answer 1

B

Question 2

​Managers of profit centers earn more when their divisions

A)​increase their sales and decrease their costs
B)decrease their sales and increase their costs
C)increase the costs of the components for which they are responsible
D)​None

Answer 2

A

Question 3

​In profit centers

A)​Managers are easy to evaluate because there is a simple metric of how well they performed
B)Managers typically do not have the information to run their division efficiently
C)Managers' decisions rarely affect other divisions
D)​Managers typically do not have the incentives to run their division efficiently

Answer 3

A

Question 4

​All of the following can cause conflict between divisions EXCEPT

A)​Coordination between divisions does not benefit all divisions equally
B)managers of profit centers care too little about the effects of their decisions on other divisions
C)managers are rewarded only for how much profit their own division generates
D)​corporate executives can tell when a divisional manager's decisions are appropriate or not

Question 5

​The parent company would want to reward managers based on division revenues because

A)​The managers usually have the least information about their divisions
B)It would incentivize the otherwise clueless managers about the daily activities of their divisions
C)The managers usually have the best information about how to run their divisions
D)​None of the above

Question 6

​Managers of profit centers earn more when their divisions

A)​increase their sales and  increase their costs
B)decrease their sales and increase their costs
C)decrease the costs of the components for which they are responsible
D)​increase the costs of the components for which they are responsible

Question 7

​The efficient transfer price is

A)​the upstream division's average cost
B)the upstream division's marginal cost
C)the downstream division's average cost
D)​the downstream division's marginal cost

Question 8

​Conflicts can arise between divisions because

A)​Coordination between divisions does not benefit all divisions equally
B)managers of profit centers care too little about the effects of their decisions on other divisions
C)managers are rewarded only for actions that increase their own divisional profit regardless of their effects on other divisions
D)​all of the above

Question 9

​All of the following can cause conflict between divisions EXCEPT

A)​Divisional managers are rewarded on the profitability of the firm,instead of profitability of the division     
B)managers of profit centers care too little about the effects of their decisions on other divisions
C)managers are rewarded only for how much profit their division generates
D)​corporate executives cannot tell when one divisional manager's decisions are appropriate or not

Question 10

​In profit centers

A)​Managers are difficult to evaluate because there is no simple metric of how well they performed
B)Managers typically have the necessary information to run their division efficiently
C)Managers' decisions rarely affect other divisions
D)​Managers typically do not have the incentives to run their division efficiently

Question 11

​A division of a firm is

A)​a logical sub-organization of the firm
B)a level within the firm in which a large degree of autonomy is vested
C)a level of hierarchy within a firm that defines the scope of a manager
D)​all of the above

Question 12

​A cost center is

A)​evaluated based on minimizing costs within the division
B)evaluated based on maximizing costs within the division
C)evaluated based on minimizing profits generated by the division
D)​evaluated based on maximizing profits generated by the division

Question 13

​In profit centers

A)​Managers are difficult to evaluate because there is no simple metric of how well they performed
B)Managers typically do not have the information to run their division efficiently
C)Managers' decisions rarely affect other divisions
D)​Managers typically are incentivized to run their division efficiently

Question 14

​A profit center

A)​Is very complicated to run and manage
B)Doesn't require a lot of attention from executives at the firm's headquarters
C)Requires the parent company's highest degree of attention
D)​Does not properly incentivize the managers when it comes to their own division's performance

Question 15

​All of the following can cause conflict between divisions EXCEPT

A)​Coordination between divisions does not benefit all divisions equally
B)managers of profit centers care too little about the effects of their decisions on other divisions
C)corporate executives reward managers based on firm profitability instead of divisional profitability
D)​corporate executives cannot tell when one divisional manager's decisions are appropriate or not

Question 16

​Which of the following is a reason there are divisional conflicts over the transfer price?

A)​the manager of the upstream division prefers a transfer price that is too high
B)the manager of the downstream division prefers a transfer price that is too low
C)the corporate headquarters does not have enough information to determine the correct transfer price
D)​all of the above

Question 17

​A profit center is

A)​evaluated based on minimizing costs within the division        
B)evaluated based on maximizing costs within the division
C)evaluated based on minimizing profits generated by the division
D)​evaluated based on maximizing profits generated by the division

Question 18

​The parent company would want to reward managers based on division revenues because

A)​It decreases the incentives for the managers to make good decisions for their division
B)It increases the incentives for the managers to make good decisions for their divisions
C)It does not change the motivations for the managers
D)​None of the above

Question 19

​Which is a possible solution to a divisional conflict regarding a decision?

A)​change the division that has the authority to make the decision
B)change the information flow so that the decision maker is better informed
C)change the evaluation and reward scheme governing the decision maker
D)​all of the above

Question 20

​In profit centers

A)​Managers are difficult to evaluate because there is no simple metric of how well they performed
B)Managers typically do not have the information to run their division efficiently
C)Managers' decisions can affect other divisions
D)​Managers typically do not have the incentives to run their division efficiently

Question 21

​Which of the following is FALSE?

A)​Maximizing division profits always leads to maximizing company-wide profits
B)Managers of profit centers are usually given a lot of discretion in their decision making
C)Profit centers usually largely run themselves
D)​A manager being rewarded on division revenues has the most incentive to make good decisions for his division

Question 22

​A parent company rewarding managers on profit centers can simply

A)​Subtract division costs from the division revenue and reward the manager on the difference
B)Add the division costs to the division revenue and reward the manager on the sum
C)Reward the manager on the revenue of the division
D)​Reward the manager on the costs of the division

Question 23

​The manager of the sales department (a profit center)at Harvey's HVAC,decides to outsource any sales training that the division needs since in house training is expensive,even though the outsourced training does not cover the company's repair and warranty information from the service department.Who is making a bad decision?

A)​The Sales department
B)The Service department
C)The Training division
D)​None of the above

Question 24

​Which of the following is FALSE?

A)​Maximizing division profits can sometimes lead to reducing company-wide profits
B)Managers of profit centers are never given any discretion in their decision making
C)Profit centers usually largely run themselves
D)​A manager being rewarded on division revenues has the most incentive to make good decisions for his division

Question 25

​Under which of the following conditions would a cost center be the best option?

A)​Always,since they are largely run on their own
B)Never,since they require a high degree of the firm's attention
C)As long as the cost of monitoring is low
D)​As long as the benefits from monitoring are low

Question 26

​Managers of profit centers are usually given a lot of discretion because

A)​They always do an excellent job
B)The company can never judge their performance
C)The company has a clear performance evaluation metric
D)​They rarely ever do a good job

Question 27

​A cost center

A)​Records total costs of production
B)Is rewarded for increasing the costs of producing a specified output
C)Is rewarded for decreasing the costs of producing a specified output
D)​None of the above

Question 28

​Which of the following is TRUE?

A)​Maximizing division profits always leads to maximizing company-wide profits
B)Managers of profit centers are not given any discretion in their decision making
C)Profit centers usually require the highest degree of attention of corporate executives
D)​A manager being rewarded on division revenues has the most incentive to make good decisions for his division

Question 29

​Which of the following is TRUE?

A)​Maximizing division profits can sometimes lead to reducing company-wide profits
B)Managers of profit centers are not given any discretion in their decision making
C)Profit centers usually require the highest degree of attention of corporate executives
D)​A manager being rewarded on division revenues has no incentive to make good decisions for his division

Question 30

​Which of the following is FALSE?

A)​Maximizing division profits can sometimes lead to reducing company-wide profits
B)Managers of profit centers are usually given a lot of discretion in their decision making
C)Profit centers usually require the highest degree of attention by corporate headquarters
D)​A manager being rewarded on division revenues has the most incentive to make good decisions for his division

Question 31

​Which of the following is TRUE?

A)​Maximizing division profits always leads to maximizing company-wide profits
B)Managers of profit centers are not given any discretion in their decision making
C)Profit centers often largely run by themselves without a lot of executive oversight
D)​A manager being rewarded on division revenues has no incentive to make good decisions for his division

Question 32

​The manager of the sales department (a profit center)at Harvey's HVAC,decides to outsource any sales training that the division needs since in house training is expensive,even though the outsourced training does not cover the company's repair and warranty information from the service department.Does the Sales department have enough incentive to make a good decision?

A)​Yes,because them making the right decision would increase the division profit
B)No,because them making the right decision does not affect the division profit
C)No,because them making the right decision decreases the division profit
D)​Yes,because them making the right decision increases the company's total profits

Question 33

​Which of the following is TRUE?

A)​Maximizing division profits always leads to maximizing company-wide profits
B)Managers of profit centers are given a lot discretion in their decision making
C)Profit centers usually require the highest degree of attention of corporate executives
D)​A manager being rewarded on division revenues has no incentive to make good decisions for his division

Question 34

​Managers of profit centers usually have

A)​A lot of discretion over decisions
B)Most of their decisions overseen by corporate executives
C)No discretion over decisions
D)​Given excessively high bonuses

Question 35

​Cost centers are

A)​Evaluated on the profits they earn
B)Not evaluated on the profits they earn
C)Sometimes evaluated on the profits they earn and sometimes not
D)​None of the above

Question 36

​The manager of the sales department (a profit center)at Harvey's HVAC,decides to outsource any sales training that the division needs since in house training is expensive,even though the outsourced training does not cover the company's repair and warranty information from the service department.Does the Sales department have enough information to make the right decision?

A)​No
B)Yes
C)Uncertain
D)​None of the above

Question 37

​Cost centers

A)​Are largely run by themselves
B)Require the parent company to monitor quality control
C)May try to reduce costs by reducing quality
D)​Both B&C

Question 38

​Which of the following is FALSE?

A)​Maximizing division profits can sometimes lead to reducing company-wide profits
B)Managers of profit centers are given a lot of discretion in their decision making
C)Profit centers usually largely run themselves
D)​A manager being rewarded on division revenues has no incentive to make good decisions for his division

Question 39

​Which of the following is TRUE?

A)​Maximizing division profits will always lead to maximizing company profit
B)Maximizing division profits will always lead to minimizing company profit
C)Maximizing division profits can sometimes lead to reducing company-wide profit
D)​Maximizing division profits has no effect on company-wide profits

Question 40

​Managers of profit centers are usually given a lot of discretion because

A)​They always do an excellent job
B)They rarely do a good job
C)The company can never judge their performance
D)​It is relatively easy to tie management pay to division performance

Question 41

​When a transfer price increases

A)​the buying division will want to sell less to the selling division
B)the buying division will want to sell more to the selling division
C)the selling division will want to sell less to the buying division
D)​the selling division will want to sell more to the buying division

Question 42

​When considering setting the transfer price at the market price of a product similar to the intermediate good that is already available on the market

A)​It is appropriate to ignore that the market price includes a margin above marginal cost
B)It is OK if the product on the market includes costly features your downstream division does not use
C)Consider whether the product on the market is inexpensive because its quality is lower than you use
D)​If it is similar enough,it is justification for you producing it in-house

Question 43

​Tom & Jerry are running Hanna Barbera's lemonade stand as two profit centers.Tom makes the lemonade while Jerry sells it.Jerry argues that Tom is transferring the lemonade to him priced too high,which forces him to charge the customers a high price,losing sales.Who is making the bad decision?

A)​Tom
B)Jerry
C)Hanna Barbera
D)​None of them

Question 44

​If products similar to the intermediate good can be bought externally,an approximation of the correct transfer price is

A)​average costs
B)average fixed costs
C)average variable costs
D)​the market price

Question 45

​Transfer prices

A)​are an accounting device to allocate the costs and revenues of intermediate products across divisions          
B)increase the 'profits' of the profit center producing the intermediate product when they rise
C)decrease the 'profits' of the profit center using the intermediate product when they rise
D)​all of the above

Question 46

​Tom & Jerry are running Hanna Barbera's lemonade stand as two profit centers.Tom makes the lemonade while Jerry sells it.Jerry argues that Tom is transferring the lemonade to him priced too high,which forces him to charge the customers a high price,losing sales.Does the decision maker have the incentive to make a good decision?

A)​Yes,because it increases the division profit
B)No,because it decreases division profit
C)Yes,because it does not affect division profit
D)​No,because it increases company-wide profit

Question 47

​If the fixed costs are relatively large,a relatively good approximation of the correct transfer price is

A)​average costs
B)average fixed costs
C)average variable costs
D)​the market price

Question 48

​When considering setting the transfer price at the market price of a product similar to the intermediate good that is already available on the market

A)​It is appropriate to ignore that the market price includes a margin above marginal cost
B)It is OK if the product on the market includes costly features your downstream division does not use
C)It is OK if the product on the market is inexpensive because its quality is lower than you use
D)​If it is similar enough,it calls into question whether there are gains from producing it in-house

Question 49

​When considering setting the transfer price at the market price of a product similar to the intermediate good that is already available on the market

A)​It is appropriate to ignore that the market price includes a margin above marginal cost
B)Consider whether the product on the market includes costly features your downstream division does not use
C)It is OK if the product on the market is inexpensive because its quality is lower than you use
D)​If it is similar enough,it is justification for you producing it in-house

Question 50

​If the fixed costs can be ignored,a relatively good approximation of the correct transfer price is

A)​average costs
B)average fixed costs
C)average variable costs
D)​the market price

Question 51

​A problem with using the price of a product similar to the intermediate good sold on the market is

A)​the market price includes a margin above marginal cost
B)the product on the market may include costly features your downstream division does not use
C)the product on the market may be cheap because it is not as high of quality as your downstream division uses
D)​all of the above

Question 52

When a transfer price increases

A)​the profits of the division producing the intermediate product will rise
B)the profits of the division producing the intermediate product will fall
C)the costs of the division producing the intermediate product will rise
D)​the costs of the division producing the intermediate product will fall

Question 53

​When a transfer price decreases

A)​the profits of the division producing the intermediate product will rise
B)the profits of the division producing the intermediate product will fall
C)the costs of the division producing the intermediate product will rise
D)​the costs of the division producing the intermediate product will fall 

Question 54

​When the transfer price is increased

A)​the buying division will chose to purchase less from the selling division
B)the buying division will chose to purchase more from the selling division
C)the selling division will chose to purchase less from the buying division
D)​the selling division will chose to purchase more from the buying division

Question 55

​Tom & Jerry are running Hanna Barbera's lemonade stand as two profit centers.Tom makes the lemonade while Jerry sells it.Jerry argues that Tom is transferring the lemonade to him priced too high,which forces him to charge the customers a high price,losing sales.Does the decision maker have the information to make a good decision?

A)​Yes
B)No
C)Uncertain
D)​None of the above

Question 56

​When considering setting the transfer price at the market price of a product similar to the intermediate good that is already available on the market

A)​It is important to recognize that the market price includes a margin above marginal cost
B)It is OK if the product on the market includes costly features your downstream division does not use
C)It is OK if the product on the market is inexpensive because its quality is lower than you use
D)​If it is similar enough,it is justification for you producing it in-house

Question 57

​When a transfer price decreases

A)​the buying division will want to sell less to the selling division
B)the buying division will want to sell more to the selling division
C)the selling division will want to sell less to the buying division
D)​the selling division will want to sell more to the buying division

Question 58

​When a transfer price is decreased

A)​the buying division will chose to purchase less from the selling division
B)the buying division will chose to purchase more from the selling division
C)the selling division will chose to purchase less from the buying division
D)​the selling division will chose to purchase more from the buying division

Question 59

​When a transfer price increases

A)​the profits of the division using the intermediate product will rise      
B)the profits of the division using the intermediate product will be unaffected
C)the profits of the division using the intermediate product will fall
D)​the costs of the division using the intermediate product will fall

Question 60

​When a transfer price decreases

A)​the costs of the division using the intermediate product will fall
B)the profits of the division using the intermediate product will be unaffected
C)the profits of the division using the intermediate product will fall
D)​the profits of the division using the intermediate product will rise

Question 61

​Which of the following is TRUE about firms organized along functional lines?

A)​Workers find it difficult to develop functional expertise
B)Workers can easily share information within their division
C)They inhibit the exploitation of economies of scale
D)​All of the above

Question 62

​Adam Smith's pin factory and Henry Ford's automobile assembly line are examples of

A)​Product lines
B)Functionally organized firms
C)Inefficient processes
D)​In-line production

Question 63

​The advantages of the M-Form of firm organization is

A)​divisions can respond more easily to changes in customer demand
B)it is easier to maintain customer relationships
C)there is less coordination across the firm's divisions
D)​all of the above

Question 64

​Which of the following is a feature of an M-Form organization?

A)​divisions have difficulty responding to changes in customer demand
B)it is difficult to maintain customer relationships         
C)there is less coordination across the firm's divisions
D)​evaluating employees is easier because managers typically are similarly trained

Question 65

​Which of the following is TRUE about firms organized along functional lines?

A)​Workers find it difficult to develop functional expertise
B)Workers find it difficult to share information within their division
C)They foster the exploitation of economies of scale
D)​All of the above

Question 66

​Which of the following is TRUE about firms organized along functional lines?

A)​Workers develop functional expertise
B)Workers can easily share information within their division
C)They foster the exploitation of economies of scale
D)​All of the above

Question 67

​Which of the following is a feature of an M-Form organization?

A)​divisions can respond more easily to changes in customer demand
B)it is difficult to maintain customer relationships
C)coordination across divisions is simple and does not take much management time
D)​evaluating employees is easier because managers typically are similarly trained

Question 68

​The functional form of corporate organization

A)​organizes employees along the functions or tasks that they perform
B)organizes employees along the customer types that they serve
C)organizes employees along individual projects that arise
D)​organizes employees into softball teams         

Question 69

​An example of an M-type organizational architecture based on customer type is when divisions are defined as

A)​R&D,Engineering,Production,Marketing,Sales
B)Component 1 Plant,Component 2 Plant,Component 3 Plant,Final Assembly
C)Store 1,Store 2,Store 3,Region A,Region B,Sales Division
D)​Business Customers,Educational Customers,Household Customers

Question 70

​An example of organizational architecture based on customer location is when divisions are defined as

A)​R&D,Engineering,Production,Marketing,Sales
B)Component 1 Plant,Component 2 Plant,Component 3 Plant,Final Assembly
C)Store 1,Store 2,Store 3,Region A,Region B,Sales Division
D)​Business Customers,Educational Customers,Household Customers

Question 71

Tom & Jerry are running Hanna Barbera's lemonade stand as two profit centers.Tom makes the lemonade while Jerry sells it.Jerry argues that Tom is transferring the lemonade to him priced too high,which forces him to charge the customers a high price,losing sales.What could be a profitable solution to this transfer-pricing problem?

A)​Move the decision making to Hanna Barbera
B)Turn Tom's division into a cost center
C)Base Tom's reward on the company profits
D)​Base Jerry's reward on the company profits

Question 72

​Which of the following is FALSE about firms organized along functional lines?

A)​Workers develop functional expertise
B)Workers can easily share information within their division
C)They foster the exploitation of economies of scale
D)​None of the above

Question 73

​Which of the following is TRUE about firms organized along functional lines?

A)​In functional organizations workers develop functional expertise
B)Workers find it difficult to share information within their division
C)They inhibit the exploitation of economies of scale
D)​All of the above

Question 74

​Which of the following is the best example of function based divisions of a firm

A)​R&D,Engineering,Production,Marketing,Sales
B)Component 1 Plant,Component 2 Plant,Component 3 Plant,Final Assembly
C)Store 1,Store 2,Store 3,Region A,Region B,Sales Division
D)​Business Customers,Educational Customers,Household Customers

Question 75

​Which of the following is a feature of an M-Form organization?

A)​divisions have difficulty responding to changes in customer demand
B)it is difficult to maintain customer relationships
C)coordination across divisions is simple and does not take much management time
D)employee evaluation is hampered by managers often having different skill sets than those the manage       

Question 76

​Which of the following is a feature of an M-Form organization?

A)​divisions have difficulty responding to changes in customer demand
B)it is easier to maintain customer relationships
C)coordination across divisions is simple and does not take much management time
D)​evaluating employees is easier because managers typically are similarly trained

Question 77

A functionally organized firm is one in which​

A)​Various divisions perform the same task
B)Various divisions perform separate tasks
C)Various divisions compete with each other
D)​Various divisions handle the same production function

Question 78

​An example of organizational architecture based on production of intermediate products is when divisions are defined as

A)​R&D,Engineering,Production,Marketing,Sales
B)Component 1 Plant,Component 2 Plant,Component 3 Plant,Final Assembly
C)Store 1,Store 2,Store 3,Region A,Region B,Sales Division
D)​Business Customers,Educational Customers,Household Customers

Question 79

​The M-Form of corporate organization

A)​organizes employees along the functions or tasks that they perform  
B)organizes employees along the customer types that they serve
C)organizes employees along individual projects that arise
D)​organizes employees into softball teams

Question 80

​Which of the following is FALSE about firms organized along functional lines?

A)​Workers find it difficult to develop functional expertise
B)Workers can easily share information within their division
C)They foster the exploitation of economies of scale
D)​None of the above