Question 1

Management control systems reflect only financial data.

Accepted Answer

A) True 
 B)False

Question 2

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 3

No matter how low the transfer price, the manager of the selling division should sell the division's product to other company divisions in the interests of overall company profitability.

Accepted Answer

A) True 
 B)False

Question 4

Answer the following questions using the information below:
Division A sells ground veal internally to Division B, which in turn, produces veal burgers that sell for $10 per pound. Division A incurs costs of $1.50 per pound while Division B incurs additional costs of $5.00 per pound.
-Which of the following formulas correctly reflects the company's operating income per pound?

Accepted Answer

A) $10.00 - ($1.50 + $5.00)= $3.50 
B) $10.00 - ($2.50 + $5.00)= $2.50 
C) $10.00 - ($1.50 + $7.50)= $1.00 
D) $10.00 - ($0.50 + $2.50 + $7.00)= 0 
A) $10.00 - ($1.50 + $5.00)= $3.50 
B) $10.00 - ($2.50 + $5.00)= $2.50 
C) $10.00 - ($1.50 + $7.50)= $1.00 
D) $10.00 - ($0.50 + $2.50 + $7.00)= 0

Question 5

________ means minimum constraints and maximum freedom for managers at the lowest levels of an organization to make decisions and to take actions.

Accepted Answer

A) Total centralization 
B) Use of market-based transfer pricing 
C) Total decentralization 
D) Use of negotiated transfer pricing 
A) Total centralization 
B) Use of market-based transfer pricing 
C) Total decentralization 
D) Use of negotiated transfer pricing

Question 6

When cost-based transfer pricing is used between subunits of a large organization, describe how to avoid making suboptimal decisions.

Accepted Answer

The answer of When cost-based transfer pricing is used between...

Question 7

Answer the following questions using the information below:
Calculate the Division operating income for the Artic Air Company which 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 it to retailers. The Compressor Division "sells" compressors to the Assembly Division. The market price for the Assembly Division to purchase a compressor is $38.50. (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 $7.50 per unit at 10,000 units.
    
-What is the market-based transfer price per compressor from the Compressor Division to the Assembly Division?

Accepted Answer

A) $17.00 
B) $27.25 
C) $34.75 
D) $38.50 
A) $17.00 
B) $27.25 
C) $34.75 
D) $38.50

Question 8

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

Accepted Answer

A) it is illegal 
B) tax authorities may suspect manipulation of records 
C) it is almost impossible to keep the records straight and hard to reconcile the books 
D) Both A and B are correct. 
A) it is illegal 
B) tax authorities may suspect manipulation of records 
C) it is almost impossible to keep the records straight and hard to reconcile the books 
D) Both A and B are correct.

Question 9

The formal management control system includes:

Accepted Answer

A) performance measures 
B) mutual commitments 
C) incentive plans 
D) Both A and C are correct. 
A) performance measures 
B) mutual commitments 
C) incentive plans 
D) Both A and C are correct.

Question 10

When companies do NOT want to use market prices or find it too costly, they typically use ________ prices, even though suboptimal decisions may occur.

Accepted Answer

A) average-cost 
B) full-cost 
C) long-run cost 
D) short-run average cost 
A) average-cost 
B) full-cost 
C) long-run cost 
D) short-run average cost

Question 11

The Home Office Company makes all types of office desks. The Computer Desk Division is currently producing 10,000 desks per year with a capacity of 15,000. The variable costs assigned to each desk are $300 and annual fixed costs of the division are $900,000. The computer desk sells for $400.
The Executive Division wants to buy 5,000 desks at $280 for its custom office design business. The Computer Desk manager refused the order because the price is below variable cost. The executive manager argues that the order should be accepted because it will lower the fixed cost per desk from $90 to $60 and will take the division to its capacity, thereby causing operations to be at their most efficient level.
Required:
a. Should the order from the Executive Division be accepted by the Computer Desk Division? Why?
b. From the perspective of the Computer Desk Division and the company, should the order be accepted if the Executive Division plans on selling the desks in the outside market for $420 after incurring additional costs of $100 per desk?
c. What action should the company president take?

Accepted Answer

a.
 @#IMG-DLM& @#IMG-DLM& b. What the Executive Division doe

Question 12

Answer the following questions using the information below:
Calculate the Division operating income for the Artic Air Company which 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 it to retailers. The Compressor Division "sells" compressors to the Assembly Division. The market price for the Assembly Division to purchase a compressor is $38.50. (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 $7.50 per unit at 10,000 units.
    
-What is the transfer price per compressor from the Compressor Division to the Assembly Division if the method used to place a value on each compressor is 150% of variable costs?

Accepted Answer

A) $40.88 
B) $38.50 
C) $4.50 
D) $36.38 
A) $40.88 
B) $38.50 
C) $4.50 
D) $36.38

Question 13

An advantage of decentralization is that it:

Accepted Answer

A) creates greater responsiveness to local needs 
B) focuses manager's attention on the organization as a whole 
C) does not result in a duplication of activities 
D) reduces the cost of gathering information 
A) creates greater responsiveness to local needs 
B) focuses manager's attention on the organization as a whole 
C) does not result in a duplication of activities 
D) reduces the cost of gathering information

Question 14

Answer the following questions using the information below:
Calculate the Division operating income for the AlphaShoe Company which 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 $40. (Ignore changes in inventory.)The fixed costs for the Sole Division are assumed to be the same over the range of 40,000-100,000 units. The fixed costs for the Assembly Division are assumed to be $14 per pair at 100,000 units.
    
-What is the transfer price per pair of shoes from the Sole Division to the Assembly Division per pair of soles if the transfer price per pair of soles is 125% of full costs?

Accepted Answer

A) $20 
B) $25 
C) $26 
D) $30 
A) $20 
B) $25 
C) $26 
D) $30

Question 15

Cost based transfer prices are the only price that a firm should use when transferring goods from one subunit to another subunit.

Accepted Answer

A) True 
 B)False

Question 16

Section 482 of the U.S. Internal Revenue Code governing the taxation of multinational transfer pricing recognizes that transfer prices can be:

Accepted Answer

A) market based 
B) negotiated 
C) cost-plus based 
D) Both A and C are correct. 
A) market based 
B) negotiated 
C) cost-plus based 
D) Both A and C are correct.

Question 17

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 18

An important advantage of decentralized operations is that it improves corporate control.

Accepted Answer

A) True 
 B)False

Question 19

Answer the following questions using the information below:
Penn Oil Corporation has two divisions, Refining and Production. 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 40,000 barrels a day and usually purchases 25,000 barrels of oil from the Production Division and 15,000 barrels from other suppliers at $60 per barrel.
-Assume 200 barrels are transferred from the Production Division to the Refining Division for a transfer price of $18 per barrel. The Refining Division sells the 200 barrels at a price of $120 each to customers. What is the operating income of both divisions together?

Accepted Answer

A) $7,200 
B) $7,800 
C) $10,800 
D) $20,400 
A) $7,200 
B) $7,800 
C) $10,800 
D) $20,400

Question 20

The prices negotiated by two divisions of the same company usually have no specific relationship to either costs or market price.

Accepted Answer

A) True 
 B)False

Management control systems reflect only financial data.

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

No matter how low the transfer price, the manager of the selling division should sell the division's product to other company divisions in the interests of overall company profitability.

________ means minimum constraints and maximum freedom for managers at the lowest levels of an organization to make decisions and to take actions.

When cost-based transfer pricing is used between subunits of a large organization, describe how to avoid making suboptimal decisions.

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

The formal management control system includes:

When companies do NOT want to use market prices or find it too costly, they typically use ________ prices, even though suboptimal decisions may occur.

An advantage of decentralization is that it:

Cost based transfer prices are the only price that a firm should use when transferring goods from one subunit to another subunit.

Section 482 of the U.S. Internal Revenue Code governing the taxation of multinational transfer pricing recognizes that transfer prices can be:

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

An important advantage of decentralized operations is that it improves corporate control.

The prices negotiated by two divisions of the same company usually have no specific relationship to either costs or market price.

The Accountants Role in the Organization

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

Pricing Decisions and Cost Management

Strategy, Balanced Scorecard, and Strategic Profitability Analysis

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, Time, and the Theory of Constraints

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

Management control systems reflect only financial data.

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

No matter how low the transfer price, the manager of the selling division should sell the division's product to other company divisions in the interests of overall company profitability.

________ means minimum constraints and maximum freedom for managers at the lowest levels of an organization to make decisions and to take actions.

When cost-based transfer pricing is used between subunits of a large organization, describe how to avoid making suboptimal decisions.

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

The formal management control system includes:

When companies do NOT want to use market prices or find it too costly, they typically use ________ prices, even though suboptimal decisions may occur.

An advantage of decentralization is that it:

Cost based transfer prices are the only price that a firm should use when transferring goods from one subunit to another subunit.

Section 482 of the U.S. Internal Revenue Code governing the taxation of multinational transfer pricing recognizes that transfer prices can be:

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

An important advantage of decentralized operations is that it improves corporate control.

The prices negotiated by two divisions of the same company usually have no specific relationship to either costs or market price.

The Accountants Role in the Organization

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

Pricing Decisions and Cost Management

Strategy, Balanced Scorecard, and Strategic Profitability Analysis

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, Time, and the Theory of Constraints

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

Capital Budgeting and Cost Analysis

Performance Measurement, Compensation, and Multinational Considerations

Filters