Question 1

A transfer pricing method should lead to which of the following results?

Accepted Answer

A) managers always acting in their own best interest 
B) managers acting in their own best interest and their decisions being in the long-term best interest of the manager's subunit 
C) managers acting in their own best interest and their decisions being in the long-term best interest of the company 
D) managers not acting in their own best interest and their decisions being in the best interest of the company 
E) managers competing with each other so that they become more efficient 
A) managers always acting in their own best interest 
B) managers acting in their own best interest and their decisions being in the long-term best interest of the manager's subunit 
C) managers acting in their own best interest and their decisions being in the long-term best interest of the company 
D) managers not acting in their own best interest and their decisions being in the best interest of the company 
E) managers competing with each other so that they become more efficient

Question 2

Use the information below to answer the following question(s).Blackoil Corp.has two divisions, Refining and Production.The company's primary product is Clean Oil.Each division's costs are provided below:
   The Production Division is able to sell the oil to other areas for $24 per litre.The Refining Division has been operating at a capacity of 80,000 litres a day, using oil from the Production Division and oil purchased from other suppliers.The Refining Division usually purchases 50,000 litres of oil, on average, from the Production Division and 30,000 litres, on average, from other suppliers at $40/litre.
-What is the Production Division's operating income per 200 litres of oil reported under the 175% of variable costs method?

Accepted Answer

A) $1,500 
B) $880 
C) $100 
D) $(100) 
E) $1,200 
A) $1,500 
B) $880 
C) $100 
D) $(100) 
E) $1,200

Question 3

One benefit of centralization is an increase in development of an experienced pool of management talent to fill higher-level management positions.

Accepted Answer

A) True 
 B)False

Question 4

A company has two divisions.The Bottle Division produces products that have variable costs of $3 per unit.For the current year, sales were 150,000 to outsiders at $5 per unit and 40,000 units to the Mixing Division at 140 percent of variable costs.Under a dual transfer pricing system, the Mixing Division pays only the variable cost per unit.The fixed costs of Bottle Division were $125,000 per year.Mixing sells its finished products to outside customers for $11.50 per unit.Mixing has variable costs of $2.50 per unit in addition to the costs from Bottle.The annual fixed costs of Mixing were $85,000.There were no beginning or ending inventories during the year.Required:
What are the operating incomes of the two divisions and the company as a whole for the year? Explain why the company operating income is less than the sum of the two divisions' total income.

Accepted Answer

@#IMG-DLM& @#IMG-DLM& @#IMG-DLM& *40,000 × $3 × 1.40 = $168,000
The in

Question 5

A well-designed management control system obtains all of its information from within the company.

Accepted Answer

A) True 
 B)False

Question 6

The Assembly Division of Canadian 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 Assembly Division has been buying batteries from outside sources for $130 each.Required:
a.Should the Electrical Division manager accept the offer as is, make a counter offer, or reject the offer? Explain.
b.From the company's perspective, will the internal sales be of any benefit? Explain

Accepted Answer

a. @#IMG-DLM& Because the Electrical Division is n

Question 7

A management control system would include both formal as well as informal control mechanisms.

Accepted Answer

A) True 
 B)False

Question 8

All of the following are benefits of decentralization EXCEPT

Accepted Answer

A) it creates greater responsiveness to local needs. 
B) it decreases management and worker morale. 
C) it leads to quicker decision making. 
D) it sharpens the focus of managers. 
E) it leads to better supplier relationships. 
A) it creates greater responsiveness to local needs. 
B) it decreases management and worker morale. 
C) it leads to quicker decision making. 
D) it sharpens the focus of managers. 
E) it leads to better supplier relationships.

Question 9

A(n)________ is a binding agreement between a multinational and the taxing authority to obtain approval for a specific transfer price for a number of years.

Accepted Answer

A) Tax Treaty 
B) Advanced Transfer Pricing Arrangement 
C) Revenue Ruling 
D) Dual Price Ruling 
E) International Transfer Price 
A) Tax Treaty 
B) Advanced Transfer Pricing Arrangement 
C) Revenue Ruling 
D) Dual Price Ruling 
E) International Transfer Price

Question 10

The president of Silicon Company has just returned from a week of professional development courses and is very excited that she will not have to change the organization from a centralized structure to a decentralized structure just to have responsibility centres.However, she is somewhat confused about how responsibility centres relate to centralized organizations where a few managers have most of the authority.Required:
Explain how a centralized organization might allow for responsibility centres.

Accepted Answer

It does not make any difference what typ

Question 11

Sales between multi-national corporation subunits are termed arm's-length transactions.

Accepted Answer

A) True 
 B)False

Question 12

Sonora Manufacturing Inc.designs and builds off-road vehicles.The Frame Division builds frames that are used by the Assembly Division, and also sells frames externally to companies that produce vehicles such as golf carts.The Frame Division has an annual practical capacity of 5,000 units; a theoretical capacity of 7,300 units; and, a master-budget capacity of 4,000 units.The master-budget capacity is composed of 2,500 units produced for internal requirements, and the remainder sold externally for $800 per unit.The Frame Division has $150,000 of fixed costs.The variable costs for the units produced for internal purposes are $900 per unit, and for external sales $475.Sonora Manufacturing Inc.company policy is that internal transfers are to be done at full cost.The Frame Division has been approached by a golf cart manufacturer who has offered to purchase 3,000 frames as a one-time special order for $650 per unit.This is an all or none order.The Assembly Division can contract out the production of frames for $1,050 per unit.Required:
a.Determine Frame Division's full cost per unit for the frames produced for internal use and the frames that a produced for external sales.Justify your choice of denominator activity level when calculating the fixed cost per unit.
b.Using the general guidelines for transfer pricing, what is the minimum transfer price the Frame Division should accept? Hint: There will be separate minimum transfer prices for the existing external customers and the one-time special order.
c.From a corporate point of view should the one-time special offer be accepted.Justify your answer on quantitative and qualitative considerations.

Accepted Answer

a.Full cost per unit calculations
 @#IMG-DLM& * $1

Question 13

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.
-What is the monthly operating advantage (disadvantage)of purchasing the goods internally assuming the Production Division is able to utilize the facilities for other operations resulting in monthly cash-operating savings of $40,000?

Accepted Answer

A) $440,000 
B) $40,000 
C) $280,000 
D) $(280,000) 
E) $(360,000) 
A) $440,000 
B) $40,000 
C) $280,000 
D) $(280,000) 
E) $(360,000)

Question 14

Global Giant, a multinational corporation, has a producing subsidiary in a low tax rate country and a marketing subsidiary in a high tax country.If Global Giant wants to minimize its worldwide tax liability, we would expect Global Giant to

Accepted Answer

A) stop producing in the low tax rate country. 
B) stop marketing in the high tax rate country. 
C) establish a low transfer price when the producing unit sells to the marketing unit. 
D) establish a high transfer price when the producing unit sells to the marketing unit. 
E) be indifferent as to its transfer pricing policy. 
A) stop producing in the low tax rate country. 
B) stop marketing in the high tax rate country. 
C) establish a low transfer price when the producing unit sells to the marketing unit. 
D) establish a high transfer price when the producing unit sells to the marketing unit. 
E) be indifferent as to its transfer pricing policy.

Question 15

Use the information below to answer the following question(s).Crush Company makes internal transfers at 180% of full cost.The Soda Refining division purchases 30,000 containers of carbonated water per day, on average, from a local supplier, who delivers the water for $30 per container via an external shipper.In order to reduce costs the company located an independent producer in Manitoba who is willing to sell 30,000 containers at $20 each, delivered to Crush Company's shipping division in Manitoba.The company's Shipping Division in Manitoba can ship the 30,000 containers at a variable cost of $2.50 per container and a full cost, based on practical capacity, of $4.00 per container.When the company's Manitoba shipping division ships for external customers is charges $6.00 per container.
-What is the opportunity cost for Crush Company from continuing to purchase the water from the local supplier if the company's Manitoba shipping division has sufficient idle capacity?

Accepted Answer

A) $600,000 
B) $60,000 
C) $105,000 
D) $180,000 
E) $0 
A) $600,000 
B) $60,000 
C) $105,000 
D) $180,000 
E) $0

Question 16

Use the information below to answer the following question(s).Blackoil Corp.has two divisions, Refining and Production.The company's primary product is Clean Oil.Each division's costs are provided below:
   The Production Division is able to sell the oil to other areas for $24 per litre.The Refining Division has been operating at a capacity of 80,000 litres a day, using oil from the Production Division and oil purchased from other suppliers.The Refining Division usually purchases 50,000 litres of oil, on average, from the Production Division and 30,000 litres, on average, from other suppliers at $40/litre.
-What is the transfer price per litre from the Production Division to the Refining Division assuming the method is 120% of full costs?

Accepted Answer

A) $16.80 
B) $12.00 
C) $9.50 
D) $7.20 
E) $12.50 
A) $16.80 
B) $12.00 
C) $9.50 
D) $7.20 
E) $12.50

Question 17

Full-cost transfer prices will maximize overall corporate income when transferring products from divisions operating

Accepted Answer

A) in a low tax area to a high tax area. 
B) in a high tax area to a low tax area. 
C) between high tax areas. 
D) between low tax areas. 
E) in a high tax area to a tax exempt area. 
A) in a low tax area to a high tax area. 
B) in a high tax area to a low tax area. 
C) between high tax areas. 
D) between low tax areas. 
E) in a high tax area to a tax exempt area.

Question 18

Outlay costs are defined as the maximum contribution foregone by the supply division if the products or services are transferred internally.

Accepted Answer

A) True 
 B)False

Question 19

The costs, as opposed to benefits, of decentralization include all of the following, except

Accepted Answer

A) management development and learning. 
B) duplication of output. 
C) increased costs of information-gathering. 
D) focus of manager's attention on the subunit rather than the company as a whole. 
E) suboptimal decision making. 
A) management development and learning. 
B) duplication of output. 
C) increased costs of information-gathering. 
D) focus of manager's attention on the subunit rather than the company as a whole. 
E) suboptimal decision making.

Question 20

Use the information below to answer the following question(s).The Burnaby Division of Columbia Ltd.produces and sells component parts.Its variable costs per unit are $80 for direct materials, $32 for direct labour and $18 for variable factory overhead.It currently can sell it components on the outside market at a price of $165/unit.Fixed overhead costs are $22 per unit based on a denominator volume of 180,000 units.
-The Surrey Division of Columbia Ltd.has approached the Burnaby Division and requested that it supply 25,000 units of the component at a transfer price of $150.The Burnaby Division will save $3 per unit of direct materials costs for the components manufactured for the Surrey Division.Assuming Burnaby Division has no idle capacity, what is the minimum transfer price the Burnaby Division should agree to accept?

Accepted Answer

A) $165 
B) $150 
C) $162 
D) $130 
E) $127 
A) $165 
B) $150 
C) $162 
D) $130 
E) $127

A transfer pricing method should lead to which of the following results?

One benefit of centralization is an increase in development of an experienced pool of management talent to fill higher-level management positions.

A well-designed management control system obtains all of its information from within the company.

A management control system would include both formal as well as informal control mechanisms.

All of the following are benefits of decentralization EXCEPT

A(n)________ is a binding agreement between a multinational and the taxing authority to obtain approval for a specific transfer price for a number of years.

Sales between multi-national corporation subunits are termed arm's-length transactions.

Global Giant, a multinational corporation, has a producing subsidiary in a low tax rate country and a marketing subsidiary in a high tax country.If Global Giant wants to minimize its worldwide tax liability, we would expect Global Giant to

Full-cost transfer prices will maximize overall corporate income when transferring products from divisions operating

Outlay costs are defined as the maximum contribution foregone by the supply division if the products or services are transferred internally.

The costs, as opposed to benefits, of decentralization include all of the following, except

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

A transfer pricing method should lead to which of the following results?

One benefit of centralization is an increase in development of an experienced pool of management talent to fill higher-level management positions.

A well-designed management control system obtains all of its information from within the company.

A management control system would include both formal as well as informal control mechanisms.

All of the following are benefits of decentralization EXCEPT

A(n)________ is a binding agreement between a multinational and the taxing authority to obtain approval for a specific transfer price for a number of years.

Sales between multi-national corporation subunits are termed arm's-length transactions.

Global Giant, a multinational corporation, has a producing subsidiary in a low tax rate country and a marketing subsidiary in a high tax country.If Global Giant wants to minimize its worldwide tax liability, we would expect Global Giant to

Full-cost transfer prices will maximize overall corporate income when transferring products from divisions operating

Outlay costs are defined as the maximum contribution foregone by the supply division if the products or services are transferred internally.

The costs, as opposed to benefits, of decentralization include all of the following, except

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