Question 1

All of the following are appropriate methods for determining transfer prices EXCEPT

Accepted Answer

A)  cost-based transfer prices. 
B)  market-based transfer prices. 
C)  negotiated transfer prices. 
D)  taxation policies. 
E)  cost based transfer prices at 110% of full cost. 
A)  cost-based transfer prices. 
B)  market-based transfer prices. 
C)  negotiated transfer prices. 
D)  taxation policies. 
E)  cost based transfer prices at 110% of full cost. D

Question 2

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.
-Assume 100,000 kilograms are transferred from the Production Division to the Distribution Division for a transfer price of $0.40 per kilogram. The Distribution Division sells the 100,000 kilograms at a price of $0.55 each to customers. What is the operating income of both divisions together?

Accepted Answer

A)  $10,000 
B)  $15,000 
C)  $20,000 
D)  $25,000 
E)  $0 
A)  $10,000 
B)  $15,000 
C)  $20,000 
D)  $25,000 
E)  $0 C

Question 3

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 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 $7 per pair at 100,000 units.
Sole's costs per pair of soles are:
   Assembly's costs per completed pair of shoes are:
  
-Assume the transfer price for a pair of soles is 180% of total costs of the Sole Division and 40,000 of soles are produced and transferred to the Assembly Division. The Sole Division's operating income is:

Accepted Answer

A)  $320,000 
B)  $360,000 
C)  $248,000 
D)  $440,000 
E)  $400,000 
A)  $320,000 
B)  $360,000 
C)  $248,000 
D)  $440,000 
E)  $400,000 A

Question 4

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? Explain.
b. From the company's perspective, will the internal sales be of any benefit? Explain

Accepted Answer

@#IMG-DLM& Because the Electrical Division is not

Question 5

The profit foregone by the seller if the products or services are transferred internally instead of selling them externally are called

Accepted Answer

A)  additional costs. 
B)  opportunity costs. 
C)  outlay costs. 
D)  transfer costs. 
E)  variable costs. 
A)  additional costs. 
B)  opportunity costs. 
C)  outlay costs. 
D)  transfer costs. 
E)  variable costs.

Question 6

Walton Industries has two divisions: Machining and Assembly. The Assembly Division is looking to source 20,000 units annually of specialized component product from Machining Division. The special components have variable costs of $260 per unit in variable production costs. The Machine Products Division has a bid from an outside supplier of $445 per unit. However, to meet the requirements of the Assembly Division, Machining would have to cut back production of an existing product. This product sells for $565 per unit, and requires $369 per unit in variable production costs. Packaging and shipping costs of the existing product are $12 per unit, but these would be slashed by 75% for the specialized component for Assembly. Machining currently sells 120,000 units of the existing product and this volume would have to be reduced by 25% to meet the Assembly Division's demand.
Required:
Should the transfer take place, and if so, what would be the range of acceptable transfer prices?

Accepted Answer

The costs to outsource the specialized c

Question 7

Management control systems motivate managers and other employees to exert effort through a variety of rewards tied to the achievement of goals.

Accepted Answer

A) True 
 B)False

Question 8

A decentralized organizational structure may result in duplication of activities.

Accepted Answer

A) True 
 B)False

Question 9

Payne Ltd. has two divisions. The Compound Division makes QZ54, an industrial compound, which is then transferred to the Processing Division. The Processing Division further processes the QZ54 and sells the final product to customers at $87/kg Capacity in the Compound Division is 800,000kg QZ54 can be obtained on the external market at $50/kg Data regarding the costs per kilogram in each division are presented below:
   *In the Compound Division the variable overhead is 80% of the total, and in Processing variable overhead represents 65% of the total. Fixed overhead rates are based on capacity of 800,000kg in each division.
In addition to the manufacturing costs, the Compound Division would incur $2 per kilogram of selling costs which would be avoided on internal transfers. Similarly the Processing Division would avoid $3/kg of ordering costs on internal purchases.
Required:
a. Calculate the operating incomes for each division assuming 800,000kg of QZ54 are transferred and the company uses a market transfer price.
b. Calculate the operating incomes for each division assuming 800,000kg of QZ54 are transferred and the company uses a transfer pricing policy based on 125% of absorption manufacturing cost.
c. Comment on your calculations in a and b.
d. Should the company transfer its 800,000 kg assuming the Compound Division can sell all of its output on the external market?

Accepted Answer

a.
 @#IMG-DLM& @#IMG-DLM& $48 ∗ 1.25 = $60
 @#IMG-DLM& c. The Processi

Question 10

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 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 $7 per pair at 100,000 units.
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 soles from the Sole Division to the Assembly Division if the method used to place a value on each pair of soles is 180% of variable costs?

Accepted Answer

A)  $14.40 
B)  $12.60 
C)  $16.20 
D)  $28.80 
E)  $32.40 
A)  $14.40 
B)  $12.60 
C)  $16.20 
D)  $28.80 
E)  $32.40

Question 11

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. 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)  $152 
D)  $130 
E)  $118 
A)  $165 
B)  $150 
C)  $152 
D)  $130 
E)  $118

Question 12

The Production Division has no alternative use for the facilities used to manufacture the stuffing. What is the monthly operating income advantage (disadvantage) if the goods are purchased internally?

Accepted Answer

A)  $400,000 
B)  $640,000 
C)  $240,000 
D)  $(240,000) 
E)  $(400,000) 
A)  $400,000 
B)  $640,000 
C)  $240,000 
D)  $(240,000) 
E)  $(400,000)

Question 13

Market price is the only price that a firm should use when transferring goods from one subunit to another subunit.

Accepted Answer

A) True 
 B)False

Question 14

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 it 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 operating income of both divisions together?

Accepted Answer

A)  $200,500 
B)  $207,000 
C)  $194,000 
D)  $165,750 
E)  $230,500 
A)  $200,500 
B)  $207,000 
C)  $194,000 
D)  $165,750 
E)  $230,500

Question 15

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 another high tax 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 another high tax area.

Question 16

The Transportation Division of Petrolia Paint Company can purchase paint from an independent producer at $18 per litre. The company has three divisions: Production, Transportation, and Paint. The company's Transportation Division is currently buying paint from the Paint Division for$24 per litre. Transfer prices are based on 125 percent of full cost. The market-based transfer price per litre is $12.60. Which of the following would NOT occur if the company uses dual pricing to record the Transportation Division purchases of paint from the Paint Division?

Accepted Answer

A)  credit the Paint Division for $22.50 
B)  debit the corporate account for $9.90 
C)  debit the Transportation Division for $12.60 
D)  credit the Paint Division for $12.60 
E)  credit the Paint Division for $32.40 
A)  credit the Paint Division for $22.50 
B)  debit the corporate account for $9.90 
C)  debit the Transportation Division for $12.60 
D)  credit the Paint Division for $12.60 
E)  credit the Paint Division for $32.40

Question 17

A company has a plant in a high tax jurisdiction that produces products for a facility in a low tax jurisdiction. Suggest a strategy, including transfer prices, which will result in the lowest tax for the overall corporation.

Accepted Answer

The overall corporate objective would be

Question 18

Discuss the possible problems a corporation might have if its operations are totally decentralized.

Accepted Answer

Senior management has the ultimate respo

Question 19

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 20

Effort in terms of management control systems is defined in terms of physical exertion such as a worker producing at a faster rate.

Accepted Answer

A) True 
 B)False

All of the following are appropriate methods for determining transfer prices EXCEPT

The profit foregone by the seller if the products or services are transferred internally instead of selling them externally are called

Management control systems motivate managers and other employees to exert effort through a variety of rewards tied to the achievement of goals.

A decentralized organizational structure may result in duplication of activities.

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. Assuming Burnaby Division has no idle capacity, what is the minimum transfer price the Burnaby Division should agree to accept?

The Production Division has no alternative use for the facilities used to manufacture the stuffing. What is the monthly operating income advantage (disadvantage) if the goods are purchased internally?

Market price is the only price that a firm should use when transferring goods from one subunit to another subunit.

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

A company has a plant in a high tax jurisdiction that produces products for a facility in a low tax jurisdiction. Suggest a strategy, including transfer prices, which will result in the lowest tax for the overall corporation.

Discuss the possible problems a corporation might have if its operations are totally decentralized.

All of the following are benefits of decentralization EXCEPT

Effort in terms of management control systems is defined in terms of physical exertion such as a worker producing at a faster rate.

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

Quantitative Analyses of Cost Functions

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

Cost Management: Quality, Time, and the Theory of Constraints

Inventory Cost Management Strategies

Capital Budgeting: Methods of Investment Analysis

Capital Budgeting: a Closer Look

Multinational Performance Measurement and Compensation

Filters

Exam 23: Transfer Pricing and Multinational Management Control Systems

All of the following are appropriate methods for determining transfer prices EXCEPT

The profit foregone by the seller if the products or services are transferred internally instead of selling them externally are called

Management control systems motivate managers and other employees to exert effort through a variety of rewards tied to the achievement of goals.

A decentralized organizational structure may result in duplication of activities.

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. Assuming Burnaby Division has no idle capacity, what is the minimum transfer price the Burnaby Division should agree to accept?

The Production Division has no alternative use for the facilities used to manufacture the stuffing. What is the monthly operating income advantage (disadvantage) if the goods are purchased internally?

Market price is the only price that a firm should use when transferring goods from one subunit to another subunit.

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

A company has a plant in a high tax jurisdiction that produces products for a facility in a low tax jurisdiction. Suggest a strategy, including transfer prices, which will result in the lowest tax for the overall corporation.

Discuss the possible problems a corporation might have if its operations are totally decentralized.

All of the following are benefits of decentralization EXCEPT

Effort in terms of management control systems is defined in terms of physical exertion such as a worker producing at a faster rate.

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

Quantitative Analyses of Cost Functions

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

Cost Management: Quality, Time, and the Theory of Constraints

Inventory Cost Management Strategies

Capital Budgeting: Methods of Investment Analysis

Capital Budgeting: a Closer Look

Multinational Performance Measurement and Compensation

Filters