1) Decentralization is the delegation of freedom to make decisions.
2) Decentralization is most successful when an organization’s segments are relatively independent of one another.
3) Profit centres can exist only in a decentralized organization.
4) In designing accounting control systems, top managers must consider the system’s impact on behaviour desired by the organization.
5) Transfer prices are the amounts charged by one segment of an organization for a product or service that it supplies to another segment of the same organization.
6) To minimize transfer-pricing problems, organizations will use a variable cost-based transfer price for all their segments.
7) If there is a competitive market for the product or service being transferred internally, using the cost-based price as a transfer price will generally lead to the desired goal congruence and managerial effort.
8) Dysfunctional behaviour is action taken in congruence with organizational goals.
9) Multinational companies use transfer prices to minimize world-wide income taxes and import duties.
10) Incentives do not enhance managerial effort toward goal congruence.
11) According to agency theory, employment contracts will trade off the following three factors: risk, incentive and the cost of measuring performance.
12) Return on investment is a better test of profitability than just the amount of income generated by the investment.
13) The income percentage of revenue is determined by multiplying return on investment by the capital turnover.
14) In measuring the performance of a division manager, stockholders’ equity should not be used as the amount of invested capital.
15) In measuring income, either the net book value or the gross book value can be used.