A Division Manager May Decide to Purchase Materials from an Outside

question 126

Multiple Choice

A division manager may decide to purchase materials from an outside supplier even though another division of the firm could produce the materials at a lower incremental cost using currently idle facilities.This is an example of

• A)profit maximization.
• B)centralization.
• C)goal-congruent behavior.
• D)non-goal-congruent behavior.

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Definitions:

Unfavorable Variances

Situations where actual costs are higher than planned or budgeted costs, or actual revenue is lower than expected.

Management By Exception

A management strategy where only significant deviations from planned results are brought to the attention of management, focusing efforts on areas that are not performing as expected.

Standard Costs

Preset costs established for the manufacture of a product, including direct materials, direct labor, and overhead expenses, against which actual costs are compared.

Fixed Overhead Cost Variance

The difference between the budgeted fixed overhead costs and the actual fixed overhead incurred.