Exam 21: Transfer Pricing and Multinational Management Control Systems

Answer the following question(s)using the information below.Beta Shoe Ltd.manufactures only one type of shoe and has two divisions, the Sole Division, and the Assembly Division.The Sole Division manufactures soles for the Assembly Division, which completes the shoe and sells it to retailers.The Sole Division "sells" soles to the Assembly Division.The market price for the Assembly Division to purchase a pair of soles is $20.(Ignore changes in inventory.)The per unit fixed costs are based on a production of 60,000 pairs of shoes.Sole's costs per pair of soles are: Assembly's costs per completed pair of shoes are: -What is the transfer price per pair of shoes from the Sole Division to the Assembly Division if the transfer price per pair of soles is 125% of full costs?

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 -Profit centres

Market-based transfer prices are ideal in perfectly competitive markets when there is idle capacity in the selling division.

Goal congruence occurs when managers act in their own best interest at the expense of the organization.

Management control systems reflect only financial data.

What is the purpose of the internal control system within an organization?

When the intermediate market is perfectly competitive, interdependencies of subunits are minimal, and there are additional costs to the corporation as a whole then using the market price as the transfer price results in optimal decision making.

The Micro Division of Silicon Computers produces computer chips that are sold to the Personal Computer Division and to outsiders.Operating data for the Micro Division are as follows: The Personal Computer Division has just received an offer from an outside supplier to furnish chips at $8.60 each.The manager of Micro Division is not willing to meet the $8.60 price.She argues that it costs her $9.00 to produce and sell each chip.Sales to outside customers are at a maximum of 200,000 chips.Required: a.Verify the Micro Division's $9.00 unit cost figure. b.Should the Micro Division meet the outside price of $8.60? Explain on a per unit basis. c.Prepare a Micro Division income statement for the sale to the Personal Computer Division assuming that the unit selling price of $8.60 is agreed.Comment on the allocation of fixed costs.

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: -If the Assembly Division sells 1,000 air conditioners at a price of $750.00 per air conditioner to customers, what is the company's operating income?

Which of the following is FALSE concerning profit centres and cost centres?

Physical exertion and mental action towards a goal can best be described as

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 -Variable manufacturing cost plus a mark-up

In the short run, the manager of the supplier division should meet the distress price as long as it exceeds the incremental costs of supplying the product or service.

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. -One reason companies use full-cost transfer pricing is that it provides relevant costs for

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 -Manufacturing plus marketing plus distribution plus customer service costs

Management control systems collect which type of data?

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 -Gathering information may be very expensive.

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: -Assume the transfer price for a compressor is 150% of total costs of the Compressor Division and 1,000 of the compressors are produced and transferred to the Assembly Division.The Compressor Division's operating income is

Which of the following statements is FALSE?

Use the information below to answer the following question(s).Bon Accord uses two divisions in the production of soybean burgers.Division A sells soybean paste internally to Division B, which, in turn, produces soybean burgers that sell for $5 per kilogram.Division A incurs costs of $0.75 per kilogram, while Division B incurs additional costs of $2.50 per kilogram. -What is Division B's operating income per kilogram assuming the transfer price of the soybean paste is set at $1.25 per kilogram?