Question 1

A larger bonus portion compared with the guaranteed portion of a contract creates more incentive.

Accepted Answer

A) True 
 B)False

Question 2

A major reason for transfer pricing is to communicate data that will lead to goal-congruent decisions.

Accepted Answer

A) True 
 B)False

Question 3

Rewards may be nonmonetary.

Accepted Answer

A) True 
 B)False

Question 4

The variable cost of Part X is $50 and the full cost of the part is $80.The part is produced in Country Z and transferred to a plant in Country B.Country Z has a 30% income tax rate.Country B has a 50% income tax rate and an import duty equal to 10% of the price of the item.Part X can be transferred at full cost or variable cost.Assume that Part X is priced at full cost.The income tax effect per unit in country Z is_____.

Accepted Answer

A) an increase in tax by $9 per unit 
B) a decrease in tax by $9 per unit 
C) an increase in tax by $24 per unit 
D) a decrease in tax by $24 per unit 
A) an increase in tax by $9 per unit 
B) a decrease in tax by $9 per unit 
C) an increase in tax by $24 per unit 
D) a decrease in tax by $24 per unit

Question 5

Identify which of the following statements about cost centers and decentralization is true.

Accepted Answer

A) Accountability for revenues and expenses exists independently of the ability to make decisions. 
B) Accountability for revenues and expenses requires the ability to make decisions. 
C) Decentralized organizations are organized into profit centers. 
D) Cost centers are centralized, but profit centers are decentralized. 
A) Accountability for revenues and expenses exists independently of the ability to make decisions. 
B) Accountability for revenues and expenses requires the ability to make decisions. 
C) Decentralized organizations are organized into profit centers. 
D) Cost centers are centralized, but profit centers are decentralized.

Question 6

The following information pertains to Alan Company: $$\begin{array} { l r } 
\text { Total assets } & \$ 100,000 \
\text { Total current liabilities } & 30,000 \
\text { Total expenses } & 60,000 \
\text { Total liabilities } & 35,000 \
\text { Total revenues } & 80,000
\end{array}$$ If invested capital is defined as total assets, the return on investment is _____.

Accepted Answer

A) 160% 
B) 60% 
C) 70% 
D) 20% 
A) 160% 
B) 60% 
C) 70% 
D) 20%

Question 7

A division of Sarge Company is located in a country that places restrictions on the amount of funds that may be paid as dividends to foreign owners.If Sarge Company wishes to maximize the amount of cash received from the foreign division, Sarge Company should establish a _____.

Accepted Answer

A) high transfer price of goods transferred out of the country 
B) high transfer price of goods transferred into the country 
C) low transfer price of goods transferred out of the country 
D) low transfer price of goods transferred into the country 
A) high transfer price of goods transferred out of the country 
B) high transfer price of goods transferred into the country 
C) low transfer price of goods transferred out of the country 
D) low transfer price of goods transferred into the country

Question 8

Return on sales = revenue / income.

Accepted Answer

A) True 
 B)False

Question 9

With no opportunity cost, using the market price as a transfer price will not create dysfunctional decisions.

Accepted Answer

A) True 
 B)False

Question 10

The costs of accumulating and processing information frequently decline under centralization.

Accepted Answer

A) True 
 B)False

Question 11

One reason companies use full-cost transfer pricing is that it provides relevant costs for _____.

Accepted Answer

A) long-run decisions even though poor short-run decisions may result 
B) long-run decisions and for short-run decisions 
C) short-run decisions even though poor long-run decisions may result 
D) short-run decisions at the expense of the company 
A) long-run decisions even though poor short-run decisions may result 
B) long-run decisions and for short-run decisions 
C) short-run decisions even though poor long-run decisions may result 
D) short-run decisions at the expense of the company

Question 12

Decentralization may increase a firm's costs because _____.

Accepted Answer

A) managers duplicate services that might be less expensive if centralized 
B) information costs rise as responsibility reports are needed 
C) managers duplicate services that might be less expensive if centralized and information costs rise as responsibility reports are needed 
D) none of these answers is correct 
A) managers duplicate services that might be less expensive if centralized 
B) information costs rise as responsibility reports are needed 
C) managers duplicate services that might be less expensive if centralized and information costs rise as responsibility reports are needed 
D) none of these answers is correct

Question 13

Decentralization is the delegation of freedom to make decisions.

Accepted Answer

A) True 
 B)False

Question 14

The following information pertains to Rory Company: $ \begin{array}{llll}\text { Current assets } & \$ 100,000 & \text { Current liabilities } & \$ 75,000\
\text { Property, plant and } \\
\text { equipment } & 50,000 & \text { Long-term liabilities } & 100,000 \
\text { Construction in progress } & 150,000 & \text { Stockholders' equity } & 125,000\
\text { Total assets }&\$300,000&\text { Total assets }&\$300,000
\end{array} $  Invested capital is _____ if it is defined as total assets employed.

Accepted Answer

A) $300,000 
B) $150,000 
C) $225,000 
D) $100,000 
A) $300,000 
B) $150,000 
C) $225,000 
D) $100,000

Question 15

Lou Company records reveal the following: $\begin{array}{lr}\text { Division } \mathrm{X}\
\text { Market price of finished component to outsiders } & \$ 32 \
\text { Variable costs per component } & \underline{24} \
\text { Contribution margin per component } & \underline{\$ 8} \
\text { Total contribution for } 20,000 \text { components } & \$ 160,000
\end{array}$

$\begin{array}{ll}\text { Division Y }\
\text {Sales price of finished product Variable costs: } & &&\$42 \
\text {Division X 1 component @ \$24) } &  \
\text {Division Y } & &\$24 \
\text { Assembly} & \$9 \
\text { Packaging} & 4&13&-37 \
\text {Contribution margin per unit } & &&\$5 \
\text {Total contribution for 20,000 units } & &&\$100,000 \
\end{array}$
 The variable costs of Division Y will be incurred whether it buys from Division X or from an outside supplier.If Division X wants to transfer the components to Division Y for $34 each, the manager of Division Y would _____.

Accepted Answer

A) not want to buy from Division X, as the same component could be purchased at the market price of $32 
B) buy from Division X, as this would be in the best interest of the company as a whole 
C) buy from Division X as long as Division X could supply a large enough quantity to make it profitable to Division Y 
D) probably ask Division X's manager to split the difference between the $34 and the market price of $32 to arrive at a transfer price of $36 
A) not want to buy from Division X, as the same component could be purchased at the market price of $32 
B) buy from Division X, as this would be in the best interest of the company as a whole 
C) buy from Division X as long as Division X could supply a large enough quantity to make it profitable to Division Y 
D) probably ask Division X's manager to split the difference between the $34 and the market price of $32 to arrive at a transfer price of $36

Question 16

In general, for companies using ROI, the most profitable divisions have more incentive to invest in new projects than do the least profitable divisions.

Accepted Answer

A) True 
 B)False

Question 17

Speedo Company's revenues are $300 on invested capital of $240.Expenses are currently 70% of sales.If Angelo Company can reduce its invested capital by 20%, return on investment will be _____.

Accepted Answer

A) 75% 
B) 93.75% 
C) 18.75% 
D) 46.88% 
A) 75% 
B) 93.75% 
C) 18.75% 
D) 46.88%

Question 18

The amount charged by one segment of an organization for a product or service that it supplies to another segment of the same organization

Accepted Answer

The answer of The amount charged by one segment of...

Question 19

The additional amount the selling segment must pay to produce and transfer a product or service to another segment

Accepted Answer

The answer of The additional amount the selling segment must...

Question 20

ROI is computed as _____.

Accepted Answer

A) income percentage of revenue x return on sales 
B) capital turnover x return on sales 
C) residual income x capital turnover 
D) cost of capital x income percentage of revenue 
A) income percentage of revenue x return on sales 
B) capital turnover x return on sales 
C) residual income x capital turnover 
D) cost of capital x income percentage of revenue

A larger bonus portion compared with the guaranteed portion of a contract creates more incentive.

A major reason for transfer pricing is to communicate data that will lead to goal-congruent decisions.

Rewards may be nonmonetary.

Identify which of the following statements about cost centers and decentralization is true.

The following information pertains to Alan Company: Total assets \ 100,000 Total current liabilities 30,000 Total expenses 60,000 Total liabilities 35,000 Total revenues 80,000 If invested capital is defined as total assets, the return on investment is _____.

A division of Sarge Company is located in a country that places restrictions on the amount of funds that may be paid as dividends to foreign owners.If Sarge Company wishes to maximize the amount of cash received from the foreign division, Sarge Company should establish a _____.

Return on sales = revenue / income.

With no opportunity cost, using the market price as a transfer price will not create dysfunctional decisions.

The costs of accumulating and processing information frequently decline under centralization.

One reason companies use full-cost transfer pricing is that it provides relevant costs for _____.

Decentralization may increase a firm's costs because _____.

Decentralization is the delegation of freedom to make decisions.

In general, for companies using ROI, the most profitable divisions have more incentive to invest in new projects than do the least profitable divisions.

Speedo Company's revenues are $300 on invested capital of $240.Expenses are currently 70% of sales.If Angelo Company can reduce its invested capital by 20%, return on investment will be _____.

The amount charged by one segment of an organization for a product or service that it supplies to another segment of the same organization

The additional amount the selling segment must pay to produce and transfer a product or service to another segment

ROI is computed as _____.

Managerial Accounting, the Business Organization, and Professional Ethics

Introduction to Cost Behavior and Cost-Volume Relationships

Measurement of Cost Behavior

Cost Management Systems and an Introduction to Activity-Based Costing

Relevant Information and Decision Making With a Focus on Pricing Decisions

Relevant Information and Decision Making: Operational Decisions

Introduction to Budgets and Preparing the Master Budget

Flexible Budgets and Variance Analysis

Management Control Systems and Responsibility Accounting

Capital Budgeting

Cost Allocation

Accounting for Overhead Costs

Job-Costing and Process-Costing Systems

Basic Accounting: Concepts, Techniques, and Conventions

Understanding Corporate Annual Reports: Basic Financial Statements

Understanding and Analyzing Consolidated Financial Statements

Filters

Exam 10: Management Control in Decentralized Organizations

A larger bonus portion compared with the guaranteed portion of a contract creates more incentive.

A major reason for transfer pricing is to communicate data that will lead to goal-congruent decisions.

Rewards may be nonmonetary.

Identify which of the following statements about cost centers and decentralization is true.

The following information pertains to Alan Company: Total assets \ 100,000 Total current liabilities 30,000 Total expenses 60,000 Total liabilities 35,000 Total revenues 80,000 If invested capital is defined as total assets, the return on investment is _____.

A division of Sarge Company is located in a country that places restrictions on the amount of funds that may be paid as dividends to foreign owners.If Sarge Company wishes to maximize the amount of cash received from the foreign division, Sarge Company should establish a _____.

Return on sales = revenue / income.

With no opportunity cost, using the market price as a transfer price will not create dysfunctional decisions.

The costs of accumulating and processing information frequently decline under centralization.

One reason companies use full-cost transfer pricing is that it provides relevant costs for _____.

Decentralization may increase a firm's costs because _____.

Decentralization is the delegation of freedom to make decisions.

In general, for companies using ROI, the most profitable divisions have more incentive to invest in new projects than do the least profitable divisions.

Speedo Company's revenues are $300 on invested capital of $240.Expenses are currently 70% of sales.If Angelo Company can reduce its invested capital by 20%, return on investment will be _____.

The amount charged by one segment of an organization for a product or service that it supplies to another segment of the same organization

The additional amount the selling segment must pay to produce and transfer a product or service to another segment

ROI is computed as _____.

Managerial Accounting, the Business Organization, and Professional Ethics

Introduction to Cost Behavior and Cost-Volume Relationships

Measurement of Cost Behavior

Cost Management Systems and an Introduction to Activity-Based Costing

Relevant Information and Decision Making With a Focus on Pricing Decisions

Relevant Information and Decision Making: Operational Decisions

Introduction to Budgets and Preparing the Master Budget

Flexible Budgets and Variance Analysis

Management Control Systems and Responsibility Accounting

Capital Budgeting

Cost Allocation

Accounting for Overhead Costs

Job-Costing and Process-Costing Systems

Basic Accounting: Concepts, Techniques, and Conventions

Understanding Corporate Annual Reports: Basic Financial Statements

Understanding and Analyzing Consolidated Financial Statements

Filters