For each of the following activities, characteristics, and applications, identify whether they can be found in a centralized org

________ a. Freedom for managers at lower organizational levels to make decisions

________ b. Gathering information may be very expensive
________ c. Greater responsiveness to user needs
________ d. Have few interdependencies among divisions
________ e. Maximum constraints and minimum freedom for managers at lowest levels
________ f. Maximization of benefits over costs
________ g. Minimization of duplicate functions
________ h. Minimum of suboptimization
________ i. Multiple responsibility centers with various reporting units
________ j. Profit centers

a Decentralization
b Decentralization
c Decentralization
d Decentralization
e Centralization
f Both
g Centralization
h Centralization
i Both
j Both
be found in a centralized organization, a decentralized organization, or both types of organizations.
No. 1
Option 1 Sell as raw lumber for $200 per 100 board feet

Revenue $ 200
Variable Cost 100
Contribution Margin 100 per 100 board feet

Option 2 Sell as finished lumber for $275 per 100 board feet

Revenue $ 275
Variable Cost
Raw Lumber 100
Finished Lumber 125 225
Contribution Margin 50 per 100 board feet

Company will maximize its income or contribution margin by selling the lumber as raw lumber because it will provid

No. 2
Transfer price at 110% of variable costs
Transfer price = 110

Sell as Raw Sell as Finished

Raw Lumber Div
Revenue 200 110
Variable Cost 100 100
Operating Income 100 10

Finished Lumber Div

Revenue 0 275
Transfer-in Cost 0 110
Variable Cost 0 125
Operating Income 0 40

Raw Division will get maximum profit by selling raw lumber rather than finished lumber
Else, Finished lumber will get maximum profit by selling finished lumber but as a whole, the company will get les

No. 3
Transfer price at market price
Transfer price = 200

Sell as Raw Sell as Finished

Raw Lumber Div
Revenue 200 200
 Variable Cost 100 100
Operating Income 100 100

Finished Lumber Div

Revenue 0 275
Transfer-in Cost 0 200
Variable Cost 0 125
Operating Income 0 -50

Raw Division will still get maximum profit by selling raw lumber rather than finished lumber
Else, and finished lumber division will get more by not processing the raw lumber to finished lumber
umber because it will provide more

ole, the company will get less profit

finished lumber
No. 1 A. Market Price B. 200% Full Cost
China Division
Division revenue per unit 500 640
Cost per unit:
Division variable cost per unit 100 100
Division fixed cost per unit 220 220
Total division cost per unit 320 320
Division operating income per unit 180 320
Income tax at 40% 72 128
Division net income per unit 108 192

South Korea Division

Division revenue per unit 1340 2920
Cost per unit:
Transferred-in cost per unit 500 640
Division variable cost per unit 350 350
Division fixed cost per unit 470 470
Total division cost per unit 1320 1460
Division operating income per unit 20 1460
Income tax at 20% 4 292
Division net income per unit 16 1168

United States Division

Division revenue per unit 3800 3800
Cost per unit:
Transferred-in cost per unit 1340 2920
Division variable cost per unit 125 125
Division fixed cost per unit 325 325
Total division cost per unit 1790 3370
Division operating income per unit 2010 430
Income tax at 30% 603 129
Division net income per unit 1407 301

No. 2 Division Net Income A. Market Price B. 200% Full Cost

China Division 108 192
Sout Korea Division 16 1168
US Division 1407 301
Total 1531 1661

The maximum income could be provided by option C by using 350% variable cost
C. 350 Var Cost

350 China Plant

Var Cost 100
100 Fix Cost 220
220
320 South Korea Plant
30 Var Cost 350
12 Fix Cost 470
18
US Plant
Var Cost 125
2450 Fix Cost 325

350 Market Price

350 China 500
470 South korea 1340
1170
1280 Transfer Price under each option
256 a. Market Price
1024 China to Korea 500
South korea to US 1340

3800 b. full cost 200%

China to Korea 640
2450 South korea to US 2920
125
325 c. 350% var cost
2900 China to Korea 350
900 South korea to US 2450
270
630

C. 350 Var Cost

18
1024
630
1672