The types of responsibility centers in the example

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b. The types of responsibility centers in the example include marketing and facilities departments which are cost centers and the sales operations team which is a revenue center. 5. Sales-volume variance is the difference between flexible budget units and the static budget units multiplied by the budgeted unit contribution margin. Sales-price variance is the difference between actual price and budgeted price multiplied by the actual quantity of input. Answer: Question 1.20- Ecoclock 1. Center D would be charged for the variable cost of the units, plus a portion of the fixed costs equal to the total costs divided by the number of units produced: $6 + $150,000 / 22,500 =$12.67 2. Using a “practical capacity” method, Center A’s fixed costs would be allocated based not on the number of units produced, but rather on the number of units that it is capable of producing (40,000). $6 + $150,000 / 40,000 = $9.75 3. A 2,500 unit reduction in the number of units produced by Center B, would increase the per-unit allocation of fixed costs. Per unit cost based on production of 22,500 units: $6 + $150,000 / 22,500 =$12.67 Per unit cost based on production of 20,000 units: $6 + $150,000 / 20,000 =$13.50 Thus C’s units costs would increase by $0.83 4. a. Unused central capacity could be not allocated to operating centers, but to some centralized expense. Management could be evaluated by other measures, diluting the over capacity. b. Other evaluation measures could include quality, measured by customer satisfaction, or reductions in returns, warranty claims; financial, measured by reductions in variable costs, increases in sales; innovations; measured by new product features, or manufacturing improvements.
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395 Answer: Question 1.21 - Edge 1. a. Transfer pricing is the price one subunit department or division charges for a product or service supplied to another subunit of the same organization. b. The objectives of transfer pricing are to focus managers’ attention on their own subunits and to plan and coordinate actions across different subunits to maximize operating income for the company as a whole. Transfer prices should help achieve a company’s strategies and goals and fit its organizational structure. They should promote goal congruence and a sustained high level of management effort. The transfer price should also help top management evaluate the performance of individual subunits and their managers. 2. a. The three main ways to determine transfer prices are as follows: Market based transfer prices – top management may choose to use the price of a similar product or service publicly listed, for example in a trade association web site. Also, top management may select, for the internal price, the external price that a subunit charges to outside customers. Cost based transfer prices – top management may choose a transfer price based on the cost of producing the product in question. Examples include variable production cost, variable and fixed production costs, and full cost of the product. Full cost of the product includes all production costs plus costs from other business functions (R&D, design, marketing, distribution, and customer service).
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