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Measuring division performance at ITT with accounting numbers (based on interviews with ITT executives). ITT is a conglomerate with divisions in a wide variety of businesses. Historically, top management of ITT has considered annual earnings growth to be a primary measure of corporate performance. Divisional performance measures provide strong incentives for division managers to achieve annual budgeted profit amounts.
Because achieving profit targets is important to division managers, one would expect division managers to have incentives to play games with the ‘‘scorekeeping'' system from time to time. For example, divisions may be expected to write off as many expenses as possible in years when they can easily achieve the profit target. Division managers have little control over the internal financial reporting system, however. The corporate controller's office specifies methods of accounting for transactions within the division, so division operating managers have little opportunity to make accounting choices that would put their performance in its most favorable light.
How do companies with this type of incentive plan keep division managers from playing games with the accounting numbers?
Prepare the operating activities section of the statement of cash flows for 2008 using the indirect method.
How many bottles should be ordered for the party and what will be the unit cost of the wine? The total cost?
Prepare journal entries to record each of the following transactions for Sanchez Company. Use the letter of the transaction in place of the date.
What are the advantages and disadvantages of a stable inventory policy for a company that has greatly fluctuating sales during the year?
Explain why the transfer prices based on actual costs are not appropriate as the basis for divisional performance measurement.
Calculate the current ratio for 3M for 2009 and 2008 and how would its current ratio change?
What is a measure of operating leverage, and how is it calculated? Pine Company has a degree of operating leverage of 8. Fir Company has a degree of operating leverage of 4. Interpret these measures.
How the use of budgets in planning and controlling an organisation's activities may create incentives for unethical behaviour.
Explain why the review and audit of control systems is important for the governing body of a school such as PKG and evaluate the effectiveness of the governing body's control
Prepare a classified balance sheet as of December 31, 2012 - Net loss for the year was $2,500.
critically explain cost accounting as 1. a service activity 2. a descriptive/analytical discipline 3. an information system
Prepare the cash flows from operating activities section using the direct method.
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