Question 1

The essence of decentralization is the freedom for managers at lower levels of the organization to make decisions.

Accepted Answer

A) True 
 B)False  True

Question 2

Full-cost transfer pricing may be used because it yields relevant costs for short-run decisions even though full-cost allocations may lead to poor long-run decisions.

Accepted Answer

A) True 
 B)False  False

Question 3

Which of the following types of taxes are NOT relevant to international transfer pricing?

Accepted Answer

A) income taxes 
B) payroll taxes 
C) customs duties 
D) value-added taxes 
E) property taxes 
A) income taxes 
B) payroll taxes 
C) customs duties 
D) value-added taxes 
E) property taxes E

Question 4

A market is said to be perfectly-competitive when

Accepted Answer

A) there is no opportunity costs incurred by the vendor nor by the buyer. 
B) the market may be dominated by one or two major companies, but there are many smaller companies also in the market. 
C) there is a homogeneous product, equivalent buying and selling prices, and no individual buyers or sellers can affect those prices by their own actions. 
D) there are any number of products, equivalent buying and selling prices, and individual buyers or sellers can affect those prices by their own actions. 
E) there are any number of products, equivalent buying and selling prices, and individual buyers or sellers can affect those prices by their own actions, but there are no opportunity costs for buyers or sellers. 
A) there is no opportunity costs incurred by the vendor nor by the buyer. 
B) the market may be dominated by one or two major companies, but there are many smaller companies also in the market. 
C) there is a homogeneous product, equivalent buying and selling prices, and no individual buyers or sellers can affect those prices by their own actions. 
D) there are any number of products, equivalent buying and selling prices, and individual buyers or sellers can affect those prices by their own actions. 
E) there are any number of products, equivalent buying and selling prices, and individual buyers or sellers can affect those prices by their own actions, but there are no opportunity costs for buyers or sellers.

Question 5

Department A charges Department B $1,350 for copying services provided.The $1,350 is considered a transfer price.

Accepted Answer

A) True 
 B)False

Question 6

The Mill Flow Company has two divisions.The Cutting Division prepares timber at its sawmills.The Assembly Division prepares the cut lumber into finished wood for the furniture industry.No inventories exist in either division at the beginning of the year.During the year, the Cutting Division prepared 60,000 cords of wood at a cost of $660,000.All the lumber was transferred to the Assembly Division, where additional operating costs of $6 per cord were incurred.The 60,000 cords of finished wood were sold for $2,500,000.Required:
a.Determine the operating income for each division if the transfer price from Cutting to Assembly is at cost.
b.Determine the operating income for each division if the transfer price is $9 per cord.
c.Since the Cutting Division sells all of its wood internally to the Assembly Division, does the manager care what price is selected? Why? Should the Cutting Division be a cost centre or a profit centre under the circumstances?

Accepted Answer

a. @#IMG-DLM& * 60,000 cords × $11 = $660,000
b. @#IMG-DLM&

Question 7

Answer the following question(s)using the information below:
Greenlawn Ltd.has two divisions, Distribution and Production.The company's primary product is fertilizer.Each division's costs are provided below:
   The Distribution Division has been operating at a capacity of 4,000,000 kilograms a week and usually purchases 2,000,000 kilograms from the Production Division and 2,000,000 kilograms from other suppliers at $0.45 per kilogram.
-What is the transfer price per kilogram from the Production Division to the Distribution Division, assuming the method used to place a value on each kilogram of fertilizer is 120% of full costs?

Accepted Answer

A) $0.30 
B) $0.36 
C) $0.45 
D) $0.55 
E) $0.42 
A) $0.30 
B) $0.36 
C) $0.45 
D) $0.55 
E) $0.42

Question 8

For each of the following transfer price descriptions or operating situations, tell which of the general methods of transfer pricing it is most appropriate.
A)any method
B)negotiated
C)cost-based
D)market-based
-Internal product transfers are required if goods are available internally

Accepted Answer

The answer of For each of the following transfer price...

Question 9

Answer the following question(s)using the information below.Cool Air Ltd.manufactures only one type of air conditioner and has two divisions, the Compressor Division, and the Assembly Division.The Compressor Division manufactures compressors for the Assembly Division, which completes the air conditioner and sells them to retailers.The Compressor Division "sells" compressors to the Assembly Division.The market price for the Assembly Division to purchase a compressor is $77.(Ignore changes in inventory.)The fixed costs for the Compressor Division are assumed to be the same over the range of 5,000-10,000 units.The fixed costs for the Assembly Division are assumed to be $15.00 per unit at 10,000 units.Compressor's costs per compressor are:
   Assembly's costs per completed air conditioner are:
  
-What is the transfer price per compressor from the Compressor Division to the Assembly Division if the transfer price per compressor is 110% of full costs?

Accepted Answer

A) $84.70 
B) $80.00 
C) $76.45 
D) $59.95 
E) $77.00 
A) $84.70 
B) $80.00 
C) $76.45 
D) $59.95 
E) $77.00

Question 10

Subunit managers are better informed about their suppliers than top management is.

Accepted Answer

A) True 
 B)False

Question 11

A management control system should have all of the following characteristics, EXCEPT

Accepted Answer

A) it should motivate employees. 
B) it should be closely aligned to organizational goals and objectives. 
C) it should provide information for individual managers for decision making. 
D) it should motivate managers. 
E) it should always focus on customer satisfaction. 
A) it should motivate employees. 
B) it should be closely aligned to organizational goals and objectives. 
C) it should provide information for individual managers for decision making. 
D) it should motivate managers. 
E) it should always focus on customer satisfaction.

Question 12

Use the information below to answer the following question(s).Soft Cushion Company is highly decentralized.Each division is empowered to make its own sales decisions.The Assembly Division can purchase cushion stuffing from the Production Division or from external suppliers.The Production Division has been the major supplier of stuffing in recent years.The Assembly Division has announced that two external suppliers will be used to purchase the stuffing at $20 per kilogram for the next year.The Production Division recently increased its unit price to $40.The manager of the Production Division presented the following information; variable cost $32, fixed cost $8, to top management in order to attempt to force the Assembly Division to purchase the stuffing internally.The Assembly Division purchases 20,000 kg per month.
-The seller of product A has no idle capacity and can sell all it can produce at $20 per unit.Outlay cost is $4.What is the opportunity cost assuming the seller sells internally?

Accepted Answer

A) $4 
B) $16 
C) $20 
D) $24 
E) $44 
A) $4 
B) $16 
C) $20 
D) $24 
E) $44

Question 13

When industry has excess capacity, market prices may drop sizably below their historical average.If this drop is temporary, it is called

Accepted Answer

A) distress pricing. 
B) dropped pricing. 
C) low-average pricing. 
D) substitute pricing. 
E) fire sale. 
A) distress pricing. 
B) dropped pricing. 
C) low-average pricing. 
D) substitute pricing. 
E) fire sale.

Question 14

The general guideline for setting a minimum transfer price adds the full cost plus the opportunity cost to arrive at the minimum transfer price.

Accepted Answer

A) True 
 B)False

Question 15

The resale price method of transfer pricing requires a company to

Accepted Answer

A) understand the value added functions of each related party. 
B) transfer at the full cost of the product plus a markup. 
C) determine the market-based price. 
D) calculate the arm's-length resale price. 
E) calculate the return on assets. 
A) understand the value added functions of each related party. 
B) transfer at the full cost of the product plus a markup. 
C) determine the market-based price. 
D) calculate the arm's-length resale price. 
E) calculate the return on assets.

Question 16

Opportunity costs represent the cash flows directly associated with the production and transfer of the products and services.

Accepted Answer

A) True 
 B)False

Question 17

For each of the following activities, characteristics, and applications, tell whether they are primarily labelled as being found in a centralized organization, a decentralized organization, or both types of organizations.
A)both
B)centralization
C)decentralization
-Minimization of duplicate functions.

Accepted Answer

The answer of For each of the following activities, characteristics,...

Question 18

Answer the following question(s)using the information below.Easy Fit Ltd.manufactures heating, ventilation, and air conditioning (HVAC)equipment.The Manufacturing Division creates parts; and, the Assembly Division builds and sells the equipment.The Manufacturing Division "sells" furnace parts packages to the Assembly Division.The market price for the Assembly Division to purchase a mini furnace is $3,500.The fixed costs for the Manufacturing Division are assumed to be the same over the range of 2,000-5,000 units.The fixed costs for the Assembly Division are assumed to be $40.00 per unit at 5,000 units.Manufacturing costs per furnace are:
   Assembly's costs per completed furnace are:
  
-Assume the transfer price for a furnace is 130% of total costs of the Manufacturing Division and 5,000 of the furnaces are produced and transferred to the Assembly Division.The Manufacturing Division's operating income is

Accepted Answer

A) $3,250,000. 
B) $1,175,000. 
C) $2,500,000. 
D) $2,625,000. 
E) $2,760,000. 
A) $3,250,000. 
B) $1,175,000. 
C) $2,500,000. 
D) $2,625,000. 
E) $2,760,000.

Question 19

Dual pricing is widely used as it reduces the goal-congruence problems associated with a pure cost-plus based transfer-pricing method.

Accepted Answer

A) True 
 B)False

Question 20

It is possible to increase the overall after-tax profit of a multinational corporation by adjusting transfer prices.

Accepted Answer

A) True 
 B)False

The essence of decentralization is the freedom for managers at lower levels of the organization to make decisions.

Full-cost transfer pricing may be used because it yields relevant costs for short-run decisions even though full-cost allocations may lead to poor long-run decisions.

Which of the following types of taxes are NOT relevant to international transfer pricing?

A market is said to be perfectly-competitive when

Department A charges Department B $1,350 for copying services provided.The $1,350 is considered a transfer price.

For each of the following transfer price descriptions or operating situations, tell which of the general methods of transfer pricing it is most appropriate. A)any method B)negotiated C)cost-based D)market-based -Internal product transfers are required if goods are available internally

Subunit managers are better informed about their suppliers than top management is.

A management control system should have all of the following characteristics, EXCEPT

When industry has excess capacity, market prices may drop sizably below their historical average.If this drop is temporary, it is called

The general guideline for setting a minimum transfer price adds the full cost plus the opportunity cost to arrive at the minimum transfer price.

The resale price method of transfer pricing requires a company to

Opportunity costs represent the cash flows directly associated with the production and transfer of the products and services.

Dual pricing is widely used as it reduces the goal-congruence problems associated with a pure cost-plus based transfer-pricing method.

It is possible to increase the overall after-tax profit of a multinational corporation by adjusting transfer prices.

The Accountants Vital Role in Decision Making

An Introduction to Cost Terms and Purposes

Cost-Volume-Profit Analysis

Job Costing

Activity-Based Costing and Management

Master Budget and Responsibility Accounting

Flexible Budgets, Variances, and Management Control: I

Flexible Budgets, Variances, and Management Control: II

Income Effects of Denominator Level on Inventory Valuation

Analysis of Cost Behaviour

Decision Making and Relevant Information

Pricing Decisions, Product Profitability Decisions, and Cost Management

Strategy, Balanced Scorecard, and Profitability Analysis

Period Cost Allocation

Cost Allocation: Joint Products and Byproducts

Revenue and Customer Profitability Analysis

Process Costing

Spoilage, Rework, and Scrap

Inventory Cost Management Strategies

Capital Budgeting: Methods of Investment Analysis

Multinational Performance Measurement and Compensation

Filters

Exam 21: Transfer Pricing and Multinational Management Control Systems

The essence of decentralization is the freedom for managers at lower levels of the organization to make decisions.

Full-cost transfer pricing may be used because it yields relevant costs for short-run decisions even though full-cost allocations may lead to poor long-run decisions.

Which of the following types of taxes are NOT relevant to international transfer pricing?

A market is said to be perfectly-competitive when

Department A charges Department B $1,350 for copying services provided.The $1,350 is considered a transfer price.

For each of the following transfer price descriptions or operating situations, tell which of the general methods of transfer pricing it is most appropriate. A)any method B)negotiated C)cost-based D)market-based -Internal product transfers are required if goods are available internally

Subunit managers are better informed about their suppliers than top management is.

A management control system should have all of the following characteristics, EXCEPT

When industry has excess capacity, market prices may drop sizably below their historical average.If this drop is temporary, it is called

The general guideline for setting a minimum transfer price adds the full cost plus the opportunity cost to arrive at the minimum transfer price.

The resale price method of transfer pricing requires a company to

Opportunity costs represent the cash flows directly associated with the production and transfer of the products and services.

Dual pricing is widely used as it reduces the goal-congruence problems associated with a pure cost-plus based transfer-pricing method.

It is possible to increase the overall after-tax profit of a multinational corporation by adjusting transfer prices.

The Accountants Vital Role in Decision Making

An Introduction to Cost Terms and Purposes

Cost-Volume-Profit Analysis

Job Costing

Activity-Based Costing and Management

Master Budget and Responsibility Accounting

Flexible Budgets, Variances, and Management Control: I

Flexible Budgets, Variances, and Management Control: II

Income Effects of Denominator Level on Inventory Valuation

Analysis of Cost Behaviour

Decision Making and Relevant Information

Pricing Decisions, Product Profitability Decisions, and Cost Management

Strategy, Balanced Scorecard, and Profitability Analysis

Period Cost Allocation

Cost Allocation: Joint Products and Byproducts

Revenue and Customer Profitability Analysis

Process Costing

Spoilage, Rework, and Scrap

Inventory Cost Management Strategies

Capital Budgeting: Methods of Investment Analysis

Multinational Performance Measurement and Compensation

Filters