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

The formal management control system includes the shared values, loyalties, and mutual commitments among members of the organization.

Negotiated transfer prices are often employed when market prices are stable.

Effort refers to physical exertion, such as a worker producing at a faster rate, but excludes non-physical aspects like acumen and diligence of a worker.

A product may be passed from one subunit to another subunit in the same organization. The product is known as a(n) ________.

Which of the following is true of hybrid transfer prices?

The tariffs and customs duties governments levy on imports of products into a country also affect the transfer pricing practices of multinationals.

The management accounting system is an informal management control system which provide information about the firm's costs, revenues, and income.

The human resources systems is a part of the formal management control systems of an organization.

Timekeeper Corporation has two divisions, Distribution and Manufacturing. The company's primary product is high-end watches. Each division's costs are provided below: The Distribution Division has been operating at a capacity of 4,009,000 units a week and usually purchases 2,004,500 units from the Manufacturing Division and 2,004,500 units from other suppliers at $13.00 per unit. Assume 110,000 units are transferred from the Manufacturing Division to the Distribution Division for a transfer price of $8.00 per unit. The Distribution Division sells the 110,000 units at a price of $18 each to customers. What is the operating income of both divisions together?

An investment center is always a decentralized subunit.

Which of the following is a part of the formal management control system?

The full cost plus a markup transfer-pricing method can sometimes lead to goal incongruence.

The Fabrication Division of American Car Company has offered to purchase 90,000 batteries from the Electrical Division for $104 per unit. At a normal volume of 250,000 batteries per year, production costs per battery are as follows: The Electrical Division has been selling 250,000 batteries per year to outside buyers at $136 each; capacity is 350,000 batteries per year. The Fabrication Division has been buying batteries from outside sources for $130 each. Required: a.Should the Electrical Division manager accept the offer? Explain. b.From the company's perspective, will the internal sales be of any benefit? Explain.

How does cost-based transfer price method help managers to determine transfer prices?

Goal congruence exists when individuals work toward achieving one goal, and groups work toward achieving a different goal.

Timekeeper Corporation has two divisions, Distribution and Manufacturing. The company's primary product is high-end watches. Each division's costs are provided below: The Distribution Division has been operating at a capacity of 4,009,000 units a week and usually purchases 2,004,500 units from the Manufacturing Division and 2,004,500 units from other suppliers at $10.00 per unit. What is the transfer price per watch from the Manufacturing Division to the Distribution Division, assuming the method used to place a value on each watch is 170% of variable costs?

The seller of Product A has no idle capacity and can sell all it can produce at $59 per unit. Outlay cost is $20. What is the opportunity cost, assuming the seller sells internally?

In comparing the three basic approaches to transfer pricing, which of the following statements would be true?

Which of the following best describes an Advanced Pricing Agreement (APA)?

Cost-based transfer prices are helpful when markets are not perfectly competitive.