Question 1

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 2

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. 
E)  increases loyalty toward the organization as a whole. 
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. 
E)  increases loyalty toward the organization as a whole.

Question 3

Suboptimal decision making is also called congruent decision making.

Accepted Answer

A) True 
 B)False

Question 4

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 assuming the method used is 175% of variable costs?

Accepted Answer

A)  $10.50 
B)  $12.00 
C)  $17.50 
D)  $24.50 
E)  $12.50 
A)  $10.50 
B)  $12.00 
C)  $17.50 
D)  $24.50 
E)  $12.50

Question 5

Which of the following types of taxes are relevant to transfer pricing?

Accepted Answer

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

Question 6

When demand outstrips supply, market prices may drop below historical averages. These prices are known as distress prices.

Accepted Answer

A) True 
 B)False

Question 7

When the intermediate market is perfectly competitive, interdependencies of subunits are minimal, and there are additional costs to the corporation as a whole in using the market instead of transacting internally.

Accepted Answer

A) True 
 B)False

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

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 desks sell for $400.
The Executive Division wants to buy 5,000 desks at $280 for its custom office design business. The Computer Desk manager refuses 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 Executive Division be accepted by Computer Desk? Explain why or why not.
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 chairs in the outside market for $420 after incurring additional costs of $100 per desk?
c. What action should the company president take?

Accepted Answer

@#IMG-DLM& The manager should not accept the order

Question 10

The costs of decentralization include all of the following, except

Accepted Answer

A)  management development and learning. 
B)  duplication of activities. 
C)  increased costs of information-gathering. 
D)  too many cost centres. 
E)  decreased loyalty to the organization as a whole. 
A)  management development and learning. 
B)  duplication of activities. 
C)  increased costs of information-gathering. 
D)  too many cost centres. 
E)  decreased loyalty to the organization as a whole.

Question 11

Which of the following statements is False?

Accepted Answer

A)  A centralized structure does not empower employees to handle customer complaints directly. 
B)  A decentralized structure forces top management to lose some control over the organization. 
C)  Decentralization slows responsiveness to local needs for decision making. 
D)  The extent to which decisions are pushed downward, and the types of decisions that are pushed down, provide a measure of the level of centralization/decentralization in an organization. 
E)  Decentralization can increase motivation by allowing managers to exercise greater individual initiative. 
A)  A centralized structure does not empower employees to handle customer complaints directly. 
B)  A decentralized structure forces top management to lose some control over the organization. 
C)  Decentralization slows responsiveness to local needs for decision making. 
D)  The extent to which decisions are pushed downward, and the types of decisions that are pushed down, provide a measure of the level of centralization/decentralization in an organization. 
E)  Decentralization can increase motivation by allowing managers to exercise greater individual initiative.

Question 12

Discuss some of the recent legislation and frameworks relating to assurance and internal controls.

Accepted Answer

Assurance provided by financial accounta

Question 13

Products transferred between subunits within an organization are considered intermediate products.

Accepted Answer

A) True 
 B)False

Question 14

Bradford Manufacturing Ltd. manufactures custom metal perforating and fabricating. Its Fabricating Division can transfer the perforated metal components to Bradford's Automotive Division or it can sell its products on the external market. Fabricating currently produces and sells 350,000 units per year to the external market at an average price of $38 per unit. Variable costs of production average $22.50 and fixed costs of $6.50/unit. Fabricating incurs $2.50 of variable selling costs on external sales. Fixed costs are based on the practical capacity of the plant which is 400,000 per year. The Automotive Division is interested in acquiring up to 50,000 units per year.
Required:
a. From the standpoint of Bradford Manufacturing Ltd., should the units be transferred? Determine the financial benefit or cost of your recommendation.
b. Using the general guidelines for transfer pricing, what is the minimum transfer price Fabricating should accept?
c. What is the range of acceptable transfer prices?
d. Now assume that demand in the external market for the components is expected to increase by 8%. The Automotive Division has negotiated with an external supplier to supply 50,000 units at a price of $34.50/unit. However, if the Automotive Division reduces its volume below the 50,000 unit volume, it must pay $39 per unit. What is the optimum sourcing arrangement for the company?

Accepted Answer

a. Yes the units should be transferred.

Question 15

One reason companies use full-cost transfer pricing is that it provides

Accepted Answer

A)  relevant costs for long-run decisions even though poor short-run decisions may result. 
B)  relevant costs for long-run decisions and for short-run decisions. 
C)  relevant costs for short-run decisions and poor for long-run decisions. 
D)  relevant costs for short-run decisions at the expense of the company. 
E)  relevant costs for long-run decisions and for employee staffing decisions. 
A)  relevant costs for long-run decisions even though poor short-run decisions may result. 
B)  relevant costs for long-run decisions and for short-run decisions. 
C)  relevant costs for short-run decisions and poor for long-run decisions. 
D)  relevant costs for short-run decisions at the expense of the company. 
E)  relevant costs for long-run decisions and for employee staffing decisions.

Question 16

Cash outflows that are directly associated with the production and transfer of the products and services 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 17

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 18

A(n) ________ is a binding agreement between a multinational and the United States Internal Revenue Service to obtain approval for a specific transfer price for a number of years.

Accepted Answer

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

Question 19

Which of the following plans should be implemented assuming Tails Company wants to maximize the amount of income received from the division in Bulgaria, a country that places restrictions on the amount of funds that may be transferred outside its national border?

Accepted Answer

A)  maximize the transfer price of goods transferred out of Bulgaria 
B)  maximize the transfer price of goods transferred into Bulgaria 
C)  minimize the transfer price of goods transferred out of Bulgaria 
D)  minimize the transfer price of goods transferred into Bulgaria 
E)  minimize the price of goods to external clients 
A)  maximize the transfer price of goods transferred out of Bulgaria 
B)  maximize the transfer price of goods transferred into Bulgaria 
C)  minimize the transfer price of goods transferred out of Bulgaria 
D)  minimize the transfer price of goods transferred into Bulgaria 
E)  minimize the price of goods to external clients

Question 20

Companies may approach tax authorities to obtain an APA (Advanced Transfer Price Arrangement).

Accepted Answer

A) True 
 B)False

Exam 23: Transfer Pricing and Multinational Management Control Systems

A market is said to be perfectly-competitive when

An advantage of decentralization is that it

Suboptimal decision making is also called congruent decision making.

Which of the following types of taxes are relevant to transfer pricing?

When demand outstrips supply, market prices may drop below historical averages. These prices are known as distress prices.

When the intermediate market is perfectly competitive, interdependencies of subunits are minimal, and there are additional costs to the corporation as a whole in using the market instead of transacting internally.

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

The costs of decentralization include all of the following, except

Which of the following statements is False?

Discuss some of the recent legislation and frameworks relating to assurance and internal controls.

Products transferred between subunits within an organization are considered intermediate products.

One reason companies use full-cost transfer pricing is that it provides

Cash outflows that are directly associated with the production and transfer of the products and services are called

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?

A(n) ________ is a binding agreement between a multinational and the United States Internal Revenue Service to obtain approval for a specific transfer price for a number of years.

Which of the following plans should be implemented assuming Tails Company wants to maximize the amount of income received from the division in Bulgaria, a country that places restrictions on the amount of funds that may be transferred outside its national border?

Companies may approach tax authorities to obtain an APA (Advanced Transfer Price Arrangement).

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

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