1. Explain how the treatment of customer groups as segments can be useful to a firm.
2. What are margin and turnover? Explain how these concepts can improve the evaluation of an investment center.
3. What are the three benefits of ROI? Explain how each can lead to improved profitability.
4. What are two disadvantages of ROI? Explain how each can lead to decreased profitability.
5. What is EVA?
6. What problems do owners face in encouraging goal congruence of managers?
7. What is a transfer price?
8. Explain how transfer prices can impact performance measures, firmwide profits, and the decision to decentralize decision making.
9. Explain the opportunity cost approach to transfer pricing.
10. If the minimum transfer price of the selling division is less than the maximum transfer price of the buying division, the intermediate product should be transferred internally. Do you agree or disagree? Explain.
11. If an outside, perfectly competitive market exists for the intermediate product, what should the transfer price be? Why?
12. Discuss the advantages and disadvantages of negotiated transfer prices.
13. Identify three cost-based transfer prices. What are the disadvantages of cost-based transfer prices? When might it be appropriate to use cost-based transfer prices?