Which one of the following firms is likely to experience dysfunctional motivation on the part of its managers due to its allocation methods? (CMA adapted)
A) To allocate depreciation of forklifts used by workers at its central warehouse, Amir Electronics uses predetermined amounts calculated on the basis of the long-term average use of the services provided by the warehouse to the various segments.
B) Seattle Electronics uses the sales revenue of its various divisions to allocate costs connected with the upkeep of its headquarters building. It also uses ROI to evaluate the divisional performance.
C) Rose Industrial does not allow its service departments to pass on their cost overruns to production departments.
D) Xi Enterprises' management information system (MIS) is operated out of headquarters and serves its various divisions. Xi's allocation of MIS-related costs to its divisions is limited to costs the divisions will incur if they were to outsource their MIS needs.

Question

Quizplus · Accepted Answer

Seattle Electronics' method of allocating costs based on sales revenue and using ROI for performance evaluation can lead to dysfunctional motivation, as managers may focus on increasing sales at the expense of profitability or other important factors.

Which One of the Following Firms Is Likely to Experience