Megaline, Inc

question 105

Multiple Choice

Megaline, Inc., follows the competitive form of the multidivisional structure. It has five divisions. One division has not met the rate-of-return goals for the past year. One division has exceeded the rate-of-return goals. The other three divisions met the rate-of-return goals. The headquarters office is making decisions about where to allocate capital in the next year. Which scenario is the MOST likely?

• A) The poorest performing division will get the highest capital allocation so that it can fix its problems and achieve the rate-of-return goal next year.
• B) The highest performing division will get the highest capital allocation because it has the best prospects for creating more wealth for the shareholders next year.
• C) The average performing divisions which met the rate-of-return goals will receive the highest allocation because their performance exactly matched corporate requirements.
• D) All divisions will receive the same capital allocation for the next year because this organizational structure rewards divisional managers based on achievement of strategic goals.

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Definitions:

Activity Cost Pools

Aggregations of all the overhead costs associated with specific activities, used in activity-based costing.

Customer Margin

The profit generated from a particular customer, calculated by subtracting the costs associated with serving that customer from the revenue they generate.

Serving Customers

The activities involved in providing products or services to customers effectively.

Activity Cost Pools

Accumulations of costs grouped by similar or related activities, used in activity-based costing to allocate costs more accurately.