Question 1

Market-based transfer prices are helpful when ________.

Accepted Answer

A)  the product is specialized 
B)  the internal product is different from the products available externally in terms of its quality 
C)  the interdependencies of subunits are minimal 
D)  the markets are not perfectly competitive 
A)  the product is specialized 
B)  the internal product is different from the products available externally in terms of its quality 
C)  the interdependencies of subunits are minimal 
D)  the markets are not perfectly competitive

Question 2

The costs used in cost-based transfer prices ________.

Accepted Answer

A)  are actual costs 
B)  are budgeted costs 
C)  can either be actual or budgeted costs 
D)  are lower than the market-based transfer prices 
A)  are actual costs 
B)  are budgeted costs 
C)  can either be actual or budgeted costs 
D)  are lower than the market-based transfer prices

Question 3

In decentralized organizations, a manager might look to further the success of their subunit to the detriment of other subunits. Such behavior would be from which of the following results of decentralization?

Accepted Answer

A)  duplication of output 
B)  gains from raid decision making 
C)  unhealthy competition 
D)  broadening the reach of top management 
A)  duplication of output 
B)  gains from raid decision making 
C)  unhealthy competition 
D)  broadening the reach of top management

Question 4

Transfer prices do not affect managers whose compensation is directly dependent on an organization's operating income because transfer prices affect only divisional profits and not the organization's profit.

Accepted Answer

A) True 
 B)False

Question 5

Management control systems should be designed to support the organizational responsibilities of individual managers.

Accepted Answer

A) True 
 B)False

Question 6

Axelia Corporation has two divisions, Refining and Extraction. The company's primary product is Luboil Oil. Each division's costs are provided below:
 
The Refining Division has been operating at a capacity of 40,200 barrels a day and usually purchases 25,100 barrels of oil from the Extraction Division and 15,600 barrels from other suppliers at $58 per barrel.
What is the transfer price per barrel from the Extraction Division to the Refining Division, assuming the method used to place a value on each barrel of oil is 180% of variable costs?

Accepted Answer

A)  $25.20 
B)  $34.20 
C)  $77.00 
D)  $138.60 
A)  $25.20 
B)  $34.20 
C)  $77.00 
D)  $138.60

Question 7

Nig Car Company manufactures automobiles. The Fastback Car Division sells its cars for $50,000 each to the general public. The fastback cars have manufacturing costs of $30,000 each for variable and $15,000 each for fixed costs. The division's total fixed manufacturing costs are $75,000,000 at the normal volume of 5,000 units.
The Coupe Car Division has been unable to meet the demand for its cars this year. It has offered to buy 1,000 cars from the Fastback Car Division at the full cost of $40,000. The Fastback Car Division has excess capacity and the 1,000 units can be produced without interfering with the current outside sales of 5,000. The 6,000 volume is within the division's relevant operating range.
Explain whether the Fastback Car Division should accept the offer.

Accepted Answer

@#IMG-DLM& The proposal should be accepted because

Question 8

The choice of a transfer-pricing method has minimal effect on the allocation of company-wide operating income among divisions.

Accepted Answer

A) True 
 B)False

Question 9

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 13,000-18,000 units. The fixed costs for the Fabrication Division are assumed to be $11.00 per unit at 18,000 units.
 
If the Fabrication Division sells 1000 air conditioners at a price of $475.00 per washing machine to customers, what is the operating income of both divisions together?

Accepted Answer

A)  $167,500 
B)  $169,500 
C)  $151,000 
D)  $147,000 
A)  $167,500 
B)  $169,500 
C)  $151,000 
D)  $147,000

Question 10

A major advantage of using actual costs for transfer prices is that often inefficiencies are NOT passed along to the receiving division.

Accepted Answer

A) True 
 B)False

Question 11

________ occurs when a decision's benefits for one subunit is more than offset by the costs to the organization as a whole.

Accepted Answer

A)  Suboptimal decision making 
B)  Independent decision making 
C)  Congruent decision making 
D)  Departmental decision making 
A)  Suboptimal decision making 
B)  Independent decision making 
C)  Congruent decision making 
D)  Departmental decision making

Question 12

A company should use cost-based transfer prices ________.

Accepted Answer

A)  when a company's product is specialized 
B)  the market for the intermediate product is perfectly competitive 
C)  the interdependencies of subunits are minimal 
D)  there is no benefit from market-based transfer price 
A)  when a company's product is specialized 
B)  the market for the intermediate product is perfectly competitive 
C)  the interdependencies of subunits are minimal 
D)  there is no benefit from market-based transfer price

Question 13

What is goal congruence?

Accepted Answer

Goal congruence exists when individuals

Question 14

An advantage of using budgeted costs for transfer pricing among divisions is that ________.

Accepted Answer

A)  overall corporate profitability is usually higher 
B)  it usually provides a basis for optimal decision making 
C)  the divisions know the transfer price in advance 
D)  it promotes subunit autonomy 
A)  overall corporate profitability is usually higher 
B)  it usually provides a basis for optimal decision making 
C)  the divisions know the transfer price in advance 
D)  it promotes subunit autonomy

Question 15

One of the problems in using one set of accounting records for tax reporting and another set of records for internal management reporting is that ________.

Accepted Answer

A)  it is illegal as well as unethical to do so 
B)  the tax authorities may suspect manipulation of records 
C)  it is almost impossible to keep the records straight and hard to reconcile the books 
D)  the shareholders do not approve of such methods and the market prices will decline 
A)  it is illegal as well as unethical to do so 
B)  the tax authorities may suspect manipulation of records 
C)  it is almost impossible to keep the records straight and hard to reconcile the books 
D)  the shareholders do not approve of such methods and the market prices will decline

Question 16

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 $50. (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 $22 per pair at 103,000 units.
 
Calculate and compare the difference in overall corporate net income of Branded Shoe Company between Scenario A and Scenario B if the Assembly Division sells 103,000 pairs of shoes for $120 per pair to customers.
Scenario A: Negotiated transfer price of $33 per pair of shoes
Scenario B: Market-based transfer price

Accepted Answer

A)  $1,751,000 more net income under Scenario A 
B)  $1,751,000 less net income using Scenario B 
C)  $103,000 less net income using Scenario A. 
D)  The net income would be the same under both scenarios. 
A)  $1,751,000 more net income under Scenario A 
B)  $1,751,000 less net income using Scenario B 
C)  $103,000 less net income using Scenario A. 
D)  The net income would be the same under both scenarios.

Question 17

Which of the following is true about transfer pricing?

Accepted Answer

A)  The maximum price that the buying division is willing to pay is the higher of the eventual contribution generated from an internal transaction and the price of purchasing from an external party 
B)  The selling division must always set a transfer price above the market price of the product to make the transaction economically feasible for the buying division. 
C)  There is generally a minimum transfer price the selling division will not go below based on its own cost structure. 
D)  The transfer-price range lies between the its fixed cost per unit and the higher of its contribution or price at which the product is available from external suppliers 
A)  The maximum price that the buying division is willing to pay is the higher of the eventual contribution generated from an internal transaction and the price of purchasing from an external party 
B)  The selling division must always set a transfer price above the market price of the product to make the transaction economically feasible for the buying division. 
C)  There is generally a minimum transfer price the selling division will not go below based on its own cost structure. 
D)  The transfer-price range lies between the its fixed cost per unit and the higher of its contribution or price at which the product is available from external suppliers

Question 18

In analyzing transfer prices, the ________.

Accepted Answer

A)  buyer will not willingly purchase a product for less than the incremental costs incurred to manufacture the product internally 
B)  seller will not willingly sell a product for less than the incremental costs incurred to make the product 
C)  buyer will willingly pay more than the ceiling transfer price 
D)  buyer will not pay less than the ceiling transfer price 
A)  buyer will not willingly purchase a product for less than the incremental costs incurred to manufacture the product internally 
B)  seller will not willingly sell a product for less than the incremental costs incurred to make the product 
C)  buyer will willingly pay more than the ceiling transfer price 
D)  buyer will not pay less than the ceiling transfer price

Question 19

Which of the following is a disadvantage of using negotiated transfer price?

Accepted Answer

A)  It requires each division manager to put forth effort to increase division operating income. 
B)  Negotiated transfer prices take away the divisional autonomy as prices depend on bargaining strength. 
C)  Negotiations usually require much time and energy thereby consuming precious managerial time. 
D)  It may lead to divisional enmity because negotiation process may cause frictions among departments. 
A)  It requires each division manager to put forth effort to increase division operating income. 
B)  Negotiated transfer prices take away the divisional autonomy as prices depend on bargaining strength. 
C)  Negotiations usually require much time and energy thereby consuming precious managerial time. 
D)  It may lead to divisional enmity because negotiation process may cause frictions among departments.

Question 20

Which of the following is a characteristic of a management control system?

Accepted Answer

A)  It gathers key information that aids in the process of making decisions 
B)  It encourages short-term profit planning 
C)  Helps managers to act rapidly and with autonomy 
D)  It deals with coordinating planning across the organization and is not concerned with behavioral aspects of managing 
A)  It gathers key information that aids in the process of making decisions 
B)  It encourages short-term profit planning 
C)  Helps managers to act rapidly and with autonomy 
D)  It deals with coordinating planning across the organization and is not concerned with behavioral aspects of managing

Market-based transfer prices are helpful when ________.

The costs used in cost-based transfer prices ________.

In decentralized organizations, a manager might look to further the success of their subunit to the detriment of other subunits. Such behavior would be from which of the following results of decentralization?

Transfer prices do not affect managers whose compensation is directly dependent on an organization's operating income because transfer prices affect only divisional profits and not the organization's profit.

Management control systems should be designed to support the organizational responsibilities of individual managers.

The choice of a transfer-pricing method has minimal effect on the allocation of company-wide operating income among divisions.

A major advantage of using actual costs for transfer prices is that often inefficiencies are NOT passed along to the receiving division.

________ occurs when a decision's benefits for one subunit is more than offset by the costs to the organization as a whole.

A company should use cost-based transfer prices ________.

What is goal congruence?

An advantage of using budgeted costs for transfer pricing among divisions is that ________.

One of the problems in using one set of accounting records for tax reporting and another set of records for internal management reporting is that ________.

Which of the following is true about transfer pricing?

In analyzing transfer prices, the ________.

Which of the following is a disadvantage of using negotiated transfer price?

Which of the following is a characteristic of a management control system?

The Manager and Management Accounting

An Introduction to Cost Terms and Purposes

Cost-Volume-Profit Analysis

Job Costing

Activity-Based Costing and Activity-Based Management

Master Budget and Responsibility Accounting

Flexible Budgets, Direct-Cost Variances, and Management Control

Flexible Budgets, Overhead Cost Variances, and Management Control

Inventory Costing and Capacity Analysis

Determining How Costs Behave

Decision Making and Relevant Information

Strategy, Balanced Scorecard, and Strategic Profitability Analysis

Pricing Decisions and Cost Management

Cost Allocation, Customer-Profitability Analysis, and Sales-Variance Analysis

Allocation of Support-Department Costs, Common Costs, and Revenues

Cost Allocation: Joint Products and Byproducts

Process Costing

Spoilage, Rework, and Scrap

Balanced Scorecard: Quality and Time

Inventory Management, Just-in-Time, and Simplified Costing Methods

Capital Budgeting and Cost Analysis

Performance Measurement, Compensation, and Multinational Considerations

Filters

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

Market-based transfer prices are helpful when ________.

The costs used in cost-based transfer prices ________.

In decentralized organizations, a manager might look to further the success of their subunit to the detriment of other subunits. Such behavior would be from which of the following results of decentralization?

Transfer prices do not affect managers whose compensation is directly dependent on an organization's operating income because transfer prices affect only divisional profits and not the organization's profit.

Management control systems should be designed to support the organizational responsibilities of individual managers.

The choice of a transfer-pricing method has minimal effect on the allocation of company-wide operating income among divisions.

A major advantage of using actual costs for transfer prices is that often inefficiencies are NOT passed along to the receiving division.

________ occurs when a decision's benefits for one subunit is more than offset by the costs to the organization as a whole.

A company should use cost-based transfer prices ________.

What is goal congruence?

An advantage of using budgeted costs for transfer pricing among divisions is that ________.

One of the problems in using one set of accounting records for tax reporting and another set of records for internal management reporting is that ________.

Which of the following is true about transfer pricing?

In analyzing transfer prices, the ________.

Which of the following is a disadvantage of using negotiated transfer price?

Which of the following is a characteristic of a management control system?

The Manager and Management Accounting

An Introduction to Cost Terms and Purposes

Cost-Volume-Profit Analysis

Job Costing

Activity-Based Costing and Activity-Based Management

Master Budget and Responsibility Accounting

Flexible Budgets, Direct-Cost Variances, and Management Control

Flexible Budgets, Overhead Cost Variances, and Management Control

Inventory Costing and Capacity Analysis

Determining How Costs Behave

Decision Making and Relevant Information

Strategy, Balanced Scorecard, and Strategic Profitability Analysis

Pricing Decisions and Cost Management

Cost Allocation, Customer-Profitability Analysis, and Sales-Variance Analysis

Allocation of Support-Department Costs, Common Costs, and Revenues

Cost Allocation: Joint Products and Byproducts

Process Costing

Spoilage, Rework, and Scrap

Balanced Scorecard: Quality and Time

Inventory Management, Just-in-Time, and Simplified Costing Methods

Capital Budgeting and Cost Analysis

Performance Measurement, Compensation, and Multinational Considerations

Filters