Exam 22: Management Control Systems, Transfer Pricing, and Multinational Considerations

What is the role of unused capacity within the selling division in the determination of a negotiated transfer price to another division?

Branded Shoe Company manufactures only one type of shoe and has two divisions, the Stitching Division and the Polishing Division. The Stitching Division manufactures shoes for the Polishing Division, which completes the shoes and sells them to retailers. The Stitching Division "sells" shoes to the Polishing Division. The market price for the Polishing Division to purchase a pair of shoes is $52. (Ignore changes in inventory.) The fixed costs for the Stitching Division are assumed to be the same over the range of 40,000-103,000 units. The fixed costs for the Polishing Division are assumed to be $24 per pair at 103,000 units. What is the transfer price per pair of shoes from the Stitching Division to the Polishing Division if the method used to place a value on each pair of shoes is 175% of variable costs?

A well-designed management control system uses information from ________.

A transfer-pricing method leads to goal congruence when ________.

The seller of a product has no idle capacity and can sell all it can produce at $40 per unit. Outlay cost is $19. What is the opportunity cost, assuming the seller sells internally?

What are distress prices and which transfer prices should be used for judging performance if distress prices prevail?

An organization should design its management control system independently of its strategies, so that the system is not affected by change of strategies in future.

Plish Company manufactures only one type of washing machine and has two divisions, the Compressor Division, and the Fabrication Division. The Compressor Division manufactures compressors for the Fabrication Division, which completes the washing machine and sells it to retailers. The Compressor Division "sells" compressors to the Fabrication Division. The market price for the Fabrication Division to purchase a compressor is $60.00. (Ignore changes in inventory.) The fixed costs for the Compressor Division are assumed to be the same over the range of 8000-13,000 units. The fixed costs for the Fabrication Division are assumed to be $11.50 per unit at 13,000 units. What is the transfer price per compressor from the Compressor Division to the Fabrication Division if the transfer price per compressor is 110% of full costs?

One concern with dual pricing is that it leads to disputes about which price should be used when computing the taxable income of subunits located in different tax jurisdictions.

Companies have an incentive to lower the transfer prices of products they are exporting into a country to reduce the tariffs and customs duties charged on those products.

What are transfer prices and what are its criteria?

Surveys indicate that decisions made most frequently at the corporate level are related to sources of supplies and products to manufacture.

Which of the following is true of transfer pricing?

The minimum transfer price equals ________.

Dual pricing insulates managers from the realities of the marketplace because costs, not market prices, affect the revenues of the supplying division.

Cost-based transfer prices are often used when markets for the product are not competitive or when the quality of the internal product is different from the externally available products.

Branded Shoe Company manufactures only one type of shoe and has two divisions, the Stitching Division and the Polishing Division. The Stitching Division manufactures shoes for the Polishing Division, which completes the shoes and sells them to retailers. The Stitching Division "sells" shoes to the Polishing Division. The market price for the Polishing Division to purchase a pair of shoes is $42. (Ignore changes in inventory.) The fixed costs for the Stitching Division are assumed to be the same over the range of 40,000-101,000 units. The fixed costs for the Polishing Division are assumed to be $23 per pair at 101,000 units. If the Polishing Division sells 101,000 pairs of shoes at a price of $180 a pair to customers, what is the operating income of both divisions together?

The cost used in cost-based transfer prices can be actual cost or budgeted cost.

In a profit center, the manager is accountable for investments, revenues, and costs.

Which of the following denotes minimum transfer price?