Decentralized operations provide unique challenges for organization-wide management. A key cost figure for decentralized operations is transfer pricing across divisions. A transfer price can be based on cost, market-based, variable, or negotiated prices. Attention to behavioral aspects of managing the organization is critical to overall performance.
The key financial measures of performance include return on investment (ROI), residual income (RI), and economic value added (EVA). Please review the material on performance metrics on pages 393-403, including the discussion of invested capital, asset allocation to division, and gross versus net value of assets to prepare for the discussion questions. See the “Summary Problems for Your Review” on page 404 of the text for an example of ROI and EVA analyses with a solution set. Then complete Problem 10-43 on page 425 for these three financial measures. (A 2-page response is required.)
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