Question 1

A management control system should have all of the following characteristics, EXCEPT

Accepted Answer

A)  it should motivate employees. 
B)  it should be closely aligned to organizational goals and objectives. 
C)  it should provide information for individual managers for decision making. 
D)  it should motivate managers. 
E)  it should always focus on customer satisfaction. 
A)  it should motivate employees. 
B)  it should be closely aligned to organizational goals and objectives. 
C)  it should provide information for individual managers for decision making. 
D)  it should motivate managers. 
E)  it should always focus on customer satisfaction.

Question 2

The goal of a management control system is to improve the collective decisions in an organization in an economically feasible way.

Accepted Answer

A) True 
 B)False

Question 3

Subunit managers are better informed about their suppliers than top management is.

Accepted Answer

A) True 
 B)False

Question 4

Under what conditions would transferring products or services at market prices lead to optimal decisions within the organization?

Accepted Answer

A)  when the immediate market is a monopoly 
B)  when there is minimal interdependence between subunit divisions 
C)  when there is excess capacity 
D)  when the immediate market is not a monopoly, and there is minimal interdependence between subunit divisions 
E)  when the immediate market is only somewhat competitive and there is excess capacity 
A)  when the immediate market is a monopoly 
B)  when there is minimal interdependence between subunit divisions 
C)  when there is excess capacity 
D)  when the immediate market is not a monopoly, and there is minimal interdependence between subunit divisions 
E)  when the immediate market is only somewhat competitive and there is excess capacity

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

It is possible to increase the overall after-tax profit of a multinational corporation by adjusting transfer prices.

Accepted Answer

A) True 
 B)False

Question 7

In a time of distress prices, which of the following is true?

Accepted Answer

A)  The vendor division should set the transfer price at the distress price on a long-term basis for stability within the overall company. 
B)  The vendor division should cease production. 
C)  The purchasing division should pay normal prices. 
D)  In the short-term, the transfer price should be the distress price as long as this exceeds the incremental costs. 
E)  The distress price should be ignored as it is a function of the market, not of the internal capacities of the overall company. 
A)  The vendor division should set the transfer price at the distress price on a long-term basis for stability within the overall company. 
B)  The vendor division should cease production. 
C)  The purchasing division should pay normal prices. 
D)  In the short-term, the transfer price should be the distress price as long as this exceeds the incremental costs. 
E)  The distress price should be ignored as it is a function of the market, not of the internal capacities of the overall company.

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

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 acting in their own best interest and their decisions being in the short-term best interest of the company 
E)  managers competing with each other 
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 acting in their own best interest and their decisions being in the short-term best interest of the company 
E)  managers competing with each other

Question 10

Dual pricing is widely used as it reduces the goal-congruence problems associated with a pure cost-plus based transfer-pricing method.

Accepted Answer

A) True 
 B)False

Question 11

A product may be passed from one subunit to another subunit in the same organization. The product is known as

Accepted Answer

A)  an interdepartmental product. 
B)  an intermediate product. 
C)  a subunit product. 
D)  a transfer product. 
E)  a secondary product. 
A)  an interdepartmental product. 
B)  an intermediate product. 
C)  a subunit product. 
D)  a transfer product. 
E)  a secondary product.

Question 12

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 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)  $10.00 
B)  $12.50 
C)  $11.25 
D)  $20.00 
E)  $8.75 
A)  $10.00 
B)  $12.50 
C)  $11.25 
D)  $20.00 
E)  $8.75

Question 13

Exertion towards a goal is

Accepted Answer

A)  motivation. 
B)  effort. 
C)  goal congruence. 
D)  incentive. 
E)  loyalty. 
A)  motivation. 
B)  effort. 
C)  goal congruence. 
D)  incentive. 
E)  loyalty.

Question 14

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 15

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:
  
-What is the market-based transfer price per compressor from the Compressor Division to the Assembly Division?

Accepted Answer

A)  $34.00 
B)  $54.50 
C)  $69.50 
D)  $77.00 
E)  $115.50 
A)  $34.00 
B)  $54.50 
C)  $69.50 
D)  $77.00 
E)  $115.50

Question 16

Many companies do not want to use market prices, or find it too costly, and they use ________ prices, even though sub optimal decisions may occur.

Accepted Answer

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

Question 17

Full-cost transfer prices are adequate and lead to goal congruence for decisions that require knowledge of short-run variable costs.

Accepted Answer

A) True 
 B)False

Question 18

Transfer prices among divisions within Canada are irrelevant. Do you agree with this statement? Explain.

Accepted Answer

This statement is False. Different tax j

Question 19

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

Accepted Answer

A) True 
 B)False

Question 20

The degree of freedom to make decisions is known as decentralization.

Accepted Answer

A) True 
 B)False

Exam 23: Transfer Pricing and Multinational Management Control Systems

A management control system should have all of the following characteristics, EXCEPT

The goal of a management control system is to improve the collective decisions in an organization in an economically feasible way.

Subunit managers are better informed about their suppliers than top management is.

Under what conditions would transferring products or services at market prices lead to optimal decisions within the organization?

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

It is possible to increase the overall after-tax profit of a multinational corporation by adjusting transfer prices.

In a time of distress prices, which of the following is true?

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

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

Dual pricing is widely used as it reduces the goal-congruence problems associated with a pure cost-plus based transfer-pricing method.

A product may be passed from one subunit to another subunit in the same organization. The product is known as

Exertion towards a goal is

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

Many companies do not want to use market prices, or find it too costly, and they use ________ prices, even though sub optimal decisions may occur.

Full-cost transfer prices are adequate and lead to goal congruence for decisions that require knowledge of short-run variable costs.

Transfer prices among divisions within Canada are irrelevant. Do you agree with this statement? Explain.

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

The degree of freedom to make decisions is known as decentralization.

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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