Question 1

Setting transfer prices can be especially problematic when:

Accepted Answer

A)  Compensation is tied to the financial performance of responsibility centres 
B)  Centralised decision making is the organisational norm 
C)  Managers are evaluated based on non-financial factors 
D)  Compensation is tied to the financial performance of the organisation as a whole 
A)  Compensation is tied to the financial performance of responsibility centres 
B)  Centralised decision making is the organisational norm 
C)  Managers are evaluated based on non-financial factors 
D)  Compensation is tied to the financial performance of the organisation as a whole A

Question 2

An ideal transfer price would be the opportunity cost of internal transfers.

Accepted Answer

A) True 
 B)False  True

Question 3

Division A produces a component for Holden Ltd's main product - motor vehicles. The division operates as a profit centre. It also sells to outsiders. The present selling price is $75 per component. The company buys 600,000 units of a similar component per year from outside sources. The external purchase price is $73 as a result of a quantity discount. Division A has adequate capacity to supply the needs of the Assembly division. The following data are for Division A: $\begin{array}{ll}
\text { Direct material } & \$ 30 \text { per unit } \
\text { Direct labour } & \$ 25 \text { per unit } \
\text { Variable overhead } & \$ 10 \text { per unit } \
\text { Fixed overhead (based on a capacity of } & \$ 6 \text { per unit } \
5,000 \text { units) } &
\end{array}$
 The minimum price at which A would sell components internally is:

Accepted Answer

A)  $73 
B)  $75 
C)  $71 
D)  $65 
A)  $73 
B)  $75 
C)  $71 
D)  $65 D

Question 4

Division A of DymocksLtd has operating data as follows: $\begin{array}{llcc}
  \text {  Capacity} &  \text { 20,000 units }  \
 \text { Selling price }& \text {\$ 80 per unit  }\
 \text {  Variable costs} & \text { \$ 45 per unit }\
 \text {Fixed costs  } & \text { \$ 20 per unit }\
\end{array}$

Division B wants to purchase units from Division
A  If Division A agrees to sell units to Division B, A's variable costs will be $5 less per unit. If Division A is operating at capacity, what is the minimum price it should charge?

Accepted Answer

A)  $75 
B)  $20 
C)  $40 
D)  $60 
A)  $75 
B)  $20 
C)  $40 
D)  $60

Question 5

Economic value added can be measured so that it reduces most of the problems that arise under residual income.

Accepted Answer

A) True 
 B)False

Question 6

Residual income measures a company's profits given a required rate of return.

Accepted Answer

A) True 
 B)False

Question 7

Division A produces a component for Holden Ltd's main product - motor vehicles. The division operates as a profit centre. It also sells to outsiders. The present selling price is $75 per component. The company buys 600,000 units of a similar component per year from outside sources. The external purchase price is $73 as a result of a quantity discount. Division A has adequate capacity to supply the needs of the Assembly division. The following data are for Division A: $\begin{array}{ll}
\text { Direct material } & \$ 30 \text { per unit } \
\text { Direct labour } & \$ 25 \text { per unit } \
\text { Variable overhead } & \$ 10 \text { per unit } \
\text { Fixed overhead (based on a capacity of } & \$ 6 \text { per unit } \
5,000 \text { units) } &
\end{array}$
 The price range within which A would sell components to the Assembly Division is:

Accepted Answer

A)  $65 to $73 
B)  $71 to $75 
C)  $71 to $73 
D)  $65 to $75 
A)  $65 to $73 
B)  $71 to $75 
C)  $71 to $73 
D)  $65 to $75

Question 8

Which of the following responsibility centres can be evaluated using residual income?

Accepted Answer

A)  Profit centres 
B)  Revenue centres 
C)  Cost centres 
D)  Investment centres 
A)  Profit centres 
B)  Revenue centres 
C)  Cost centres 
D)  Investment centres

Question 9

Herbert Feigl Ltd had the following results during the most recent year: Sales $500,000; Residual income $5,000; investment turnover 2.5; and a required rate of return of 15%. The return on investment was:

Accepted Answer

A)  21.67% 
B)  15.25% 
C)  15.4% 
D)  17.5% 
A)  21.67% 
B)  15.25% 
C)  15.4% 
D)  17.5%

Question 10

An advantage of centralised decision making is:

Accepted Answer

A)  More rapid decision making in all contexts 
B)  Greater effectiveness in volatile environments 
C)  More motivated employees 
D)  Less monitoring of decisions 
A)  More rapid decision making in all contexts 
B)  Greater effectiveness in volatile environments 
C)  More motivated employees 
D)  Less monitoring of decisions

Question 11

The price used to record exchanges of goods and services inside an organisation is called a:

Accepted Answer

A)  Exchange price 
B)  Full price 
C)  Transfer price 
D)  Suboptimal price 
A)  Exchange price 
B)  Full price 
C)  Transfer price 
D)  Suboptimal price

Question 12

Herbert Feigl Ltd had the following results during the most recent year: Sales $500,000; Residual income $5,000; investment turnover 2.5; and a required rate of return of 15%. The return on sales was:

Accepted Answer

A)  6.1% 
B)  38.5% 
C)  7% 
D)  3.25% 
A)  6.1% 
B)  38.5% 
C)  7% 
D)  3.25%

Question 13

A transfer pricing policy based on market price:

Accepted Answer

A)  Is best because the market price is always objective and easily obtainable. 
B)  May result in suboptimal decision making for the company as a whole. 
C)  Maximises total organisational profit. 
D)  Is the only alternative accepted by the Australian Taxation Office. 
A)  Is best because the market price is always objective and easily obtainable. 
B)  May result in suboptimal decision making for the company as a whole. 
C)  Maximises total organisational profit. 
D)  Is the only alternative accepted by the Australian Taxation Office.

Question 14

Which of the following transfer pricing systems potentially takes the most time to establish?

Accepted Answer

A)  Dual-rate 
B)  Negotiated 
C)  Market-based 
D)  Full-cost 
A)  Dual-rate 
B)  Negotiated 
C)  Market-based 
D)  Full-cost

Question 15

Division A of Dymocks Ltd has operating data as follows: $\begin{array}{llcc}
  \text {  Capacity} &  \text { 20,000 units }  \
 \text { Selling price }& \text {\$ 80 per unit  }\
 \text {  Variable costs} & \text { \$ 45 per unit }\
 \text {Fixed costs  } & \text { \$ 20 per unit }\
\end{array}$

B wants to purchase units from Division
A If Division A agrees to sell units to Division B, A's variable costs will be $5 less per unit. If Division A has capacity available to meet B's requirements, what is the minimum price it should charge?

Accepted Answer

A)  $75 
B)  $20 
C)  $40 
D)  $60 
A)  $75 
B)  $20 
C)  $40 
D)  $60

Question 16

The National Division of RedBubble Ltd is buying 10,000 widgets from an outside supplier at $30 per unit. RedBubble's Overseas Division, which is producing and selling at full capacity (12,000 units), has the following sales and cost structure: $\begin{array}{llcc}
  \text { Sales price per unit } &\$45.00  \
 \text { Variable costper unit } &22.50\
 \text {Fixed cost (at capacity) per unit  } &15.00\
\end{array}$

If the Overseas Division meets the outside supplier's price and sells the 10,000 widgets to National, the effect on overall company profits will be

Accepted Answer

A)  $150,000 lower 
B)  $300,000 higher 
C)  $ 75,000 higher 
D)  $225.000 lower 
A)  $150,000 lower 
B)  $300,000 higher 
C)  $ 75,000 higher 
D)  $225.000 lower

Question 17

A corporate accounting department would most often be considered a:

Accepted Answer

A)  Cost centre, because its costs can be controlled by upper management 
B)  Revenue centre, if accountants have input in pricing decisions 
C)  Cost centre, because it is typically a high cost operation 
D)  Cost centre, because it is a support service 
A)  Cost centre, because its costs can be controlled by upper management 
B)  Revenue centre, if accountants have input in pricing decisions 
C)  Cost centre, because it is typically a high cost operation 
D)  Cost centre, because it is a support service

Question 18

If manufacturing departments are only responsible for production decisions, they are considered cost centres.

Accepted Answer

A) True 
 B)False

Question 19

When a company uses activity-based transfer prices:

Accepted Answer

A)  The internal buyer is motivated to understate the number of units to buy internally 
B)  Capacity is usually reserved for products or services that are transferred internally 
C)  The internal buyer is motivated to overstate the number of units to buy internally 
D)  Batch-level costs are excluded from the computation 
A)  The internal buyer is motivated to understate the number of units to buy internally 
B)  Capacity is usually reserved for products or services that are transferred internally 
C)  The internal buyer is motivated to overstate the number of units to buy internally 
D)  Batch-level costs are excluded from the computation

Question 20

Which type of knowledge is most costly to transfer within an organisation?

Accepted Answer

A)  Decentralised 
B)  Financial 
C)  Centralised 
D)  Specific 
A)  Decentralised 
B)  Financial 
C)  Centralised 
D)  Specific

Setting transfer prices can be especially problematic when:

An ideal transfer price would be the opportunity cost of internal transfers.

Economic value added can be measured so that it reduces most of the problems that arise under residual income.

Residual income measures a company's profits given a required rate of return.

Which of the following responsibility centres can be evaluated using residual income?

Herbert Feigl Ltd had the following results during the most recent year: Sales $500,000; Residual income $5,000; investment turnover 2.5; and a required rate of return of 15%. The return on investment was:

An advantage of centralised decision making is:

The price used to record exchanges of goods and services inside an organisation is called a:

Herbert Feigl Ltd had the following results during the most recent year: Sales $500,000; Residual income $5,000; investment turnover 2.5; and a required rate of return of 15%. The return on sales was:

A transfer pricing policy based on market price:

Which of the following transfer pricing systems potentially takes the most time to establish?

A corporate accounting department would most often be considered a:

If manufacturing departments are only responsible for production decisions, they are considered cost centres.

When a company uses activity-based transfer prices:

Which type of knowledge is most costly to transfer within an organisation?

The Role of Accounting Information in Management Decision Making

Cost Concepts, Behaviour and Estimation

A Costing Framework and Cost Allocation

Costvolumeprofit Cvp Analysis

Planning Budgeting and Behaviour

Operational Budgets

Job and Process Costing Systems

Flexible Budgets, Standard Costs and Variance Analysis

Variance Analysis: Revenue and Cost

Activity Analysis: Costing and Management

Relevant Costs for Decision Making

Strategy and Control

Capital Budgeting and Strategic Investment Decisions

The Strategic Management of Costs and Revenues

Strategic Management Control: a Lean Perspective

The Balanced Scorecard and Strategy Maps

Rewards, Incentives and Risk Management

Sustainability Management Accounting

Filters

Exam 16: Responsibility Accounting, Performance Evaluation and Transfer Pricing

Setting transfer prices can be especially problematic when:

An ideal transfer price would be the opportunity cost of internal transfers.

Economic value added can be measured so that it reduces most of the problems that arise under residual income.

Residual income measures a company's profits given a required rate of return.

Which of the following responsibility centres can be evaluated using residual income?

Herbert Feigl Ltd had the following results during the most recent year: Sales $500,000; Residual income $5,000; investment turnover 2.5; and a required rate of return of 15%. The return on investment was:

An advantage of centralised decision making is:

The price used to record exchanges of goods and services inside an organisation is called a:

Herbert Feigl Ltd had the following results during the most recent year: Sales $500,000; Residual income $5,000; investment turnover 2.5; and a required rate of return of 15%. The return on sales was:

A transfer pricing policy based on market price:

Which of the following transfer pricing systems potentially takes the most time to establish?

A corporate accounting department would most often be considered a:

If manufacturing departments are only responsible for production decisions, they are considered cost centres.

When a company uses activity-based transfer prices:

Which type of knowledge is most costly to transfer within an organisation?

The Role of Accounting Information in Management Decision Making

Cost Concepts, Behaviour and Estimation

A Costing Framework and Cost Allocation

Costvolumeprofit Cvp Analysis

Planning Budgeting and Behaviour

Operational Budgets

Job and Process Costing Systems

Flexible Budgets, Standard Costs and Variance Analysis

Variance Analysis: Revenue and Cost

Activity Analysis: Costing and Management

Relevant Costs for Decision Making

Strategy and Control

Capital Budgeting and Strategic Investment Decisions

The Strategic Management of Costs and Revenues

Strategic Management Control: a Lean Perspective

The Balanced Scorecard and Strategy Maps

Rewards, Incentives and Risk Management

Sustainability Management Accounting

Filters