Question 1

The price used to record exchanges of goods and services inside an organisation is called a

Accepted Answer

A)  Transfer price 
B)  Exchange price 
C)  Full price 
D)  Suboptimal price 
A)  Transfer price 
B)  Exchange price 
C)  Full price 
D)  Suboptimal price

Question 2

Return on investment cannot be used effectively to evaluate profit centres because it motivates managers to make suboptimal decisions from the viewpoint of the organisations' owners.

Accepted Answer

A) True 
 B)False

Question 3

Hitek Ltd has 2 divisions, Diodes and Boards. The diode can be sold internally or externally. If sold externally, the sales price is $15 per diode. The Boards division needs 3 diodes for each electronic board it produces. The external sales prices and costs are:   If Diodes can sell all of its production externally, what is the minimum price at which it would be willing to sell internally, and what is the maximum price the Board Division would be willing to pay?

Accepted Answer

A)  $15/$2.50 
B)  $15/$7.50 
C)  $15/$15 
D)  $15/$27 
A)  $15/$2.50 
B)  $15/$7.50 
C)  $15/$15 
D)  $15/$27

Question 4

Investment centre managers are held responsible only for their costs.

Accepted Answer

A) True 
 B)False

Question 5

Division A of a firm produces a single product, which is sold only to Division B. Division A has a total investment of $1,000,000, while Division B has a total investment of $2,000,000. Division A annually sells 100,000 units of its product to Division B for $5 per unit and earns $150,000 in operating profit. Division B currently earns $250,000. If Division A raises its selling price to $6 per unit and nothing else changes,

Accepted Answer

A)  Division A's ROI will increase to 20% 
B)  The firm's overall ROI will rise 
C)  The firm's overall ROI will fall 
D)  The firm's overall ROI will remain unchanged 
A)  Division A's ROI will increase to 20% 
B)  The firm's overall ROI will rise 
C)  The firm's overall ROI will fall 
D)  The firm's overall ROI will remain unchanged

Question 6

A transfer price is required only when goods or services are transferred between cost centres in the same organisation.

Accepted Answer

A) True 
 B)False

Question 7

The Gold Coast Division of Vallance Ltd produces and sells a product to outside and internal customers. Per-unit data collected from its operations include:   If the Gold Coast Division has excess capacity available to meet an internal order, what transfer price should be set?

Accepted Answer

A)  $625 
B)  $355 
C)  $430 
D)  $285 
A)  $625 
B)  $355 
C)  $430 
D)  $285

Question 8

Division A of Sibley Ltd has operating data as follows:   Division B wants to purchase units from Division A. If Division A agrees to sell units to Division B, A's variable costs will be $5 less per unit.
If Division A is operating at capacity, what is the minimum price it should charge?

Accepted Answer

A)  $40 
B)  $75 
C)  $20 
D)  $60 
A)  $40 
B)  $75 
C)  $20 
D)  $60

Question 9

An ideal transfer price would be the opportunity cost of internal transfers.

Accepted Answer

A) True 
 B)False

Question 10

Division A of Sibley Ltd has operating data as follows:   B wants to purchase units from Division A. If Division A agrees to sell units to Division B, A's variable costs will be $5 less per unit.
If Division A has capacity available to meet B's requirements, what is the minimum price it should charge?

Accepted Answer

A)  $40 
B)  $75 
C)  $20 
D)  $60 
A)  $40 
B)  $75 
C)  $20 
D)  $60

Question 11

A transfer pricing policy based on market price

Accepted Answer

A)  Maximises total organisational profit. 
B)  Is best because the market price is always objective and easily obtainable. 
C)  May result in suboptimal decision making for the company as a whole. 
D)  Is the only alternative accepted by the Australian Taxation Office. 
A)  Maximises total organisational profit. 
B)  Is best because the market price is always objective and easily obtainable. 
C)  May result in suboptimal decision making for the company as a whole. 
D)  Is the only alternative accepted by the Australian Taxation Office.

Question 12

Residual income measures a company's profits given a required rate of return.

Accepted Answer

A) True 
 B)False

Question 13

Division S sold a part to both Division P and outside customers last year. The revenues from these sales were $30,000 (1,000 units) and $35,000 (1,000 units), respectively. Next year, S plans to increase the unit sales price to $42 and wants a proportionate increase in the sales price to Division P. The unit costs are $9 variable and $15 fixed. If Division P does not agree to the price increase, 50% of Division S's fixed costs will be eliminated. What is the highest price Division P would be willing to pay for external purchases?

Accepted Answer

A)  $30.00 
B)  $36.00 
C)  $16.50 
D)  $28.50 
A)  $30.00 
B)  $36.00 
C)  $16.50 
D)  $28.50

Question 14

Setting transfer prices can be especially problematic when

Accepted Answer

A)  Managers are evaluated based on non-financial factors 
B)  Compensation is tied to the financial performance of responsibility centres 
C)  Centralised decision making is the organisational norm 
D)  Compensation is tied to the financial performance of the organisation as a whole 
A)  Managers are evaluated based on non-financial factors 
B)  Compensation is tied to the financial performance of responsibility centres 
C)  Centralised decision making is the organisational norm 
D)  Compensation is tied to the financial performance of the organisation as a whole

Question 15

Economic value added uses "adjusted after-tax operating profit" as one of its inputs. One purpose of using after-tax profit, rather than operating profit, is to B

Accepted Answer

A)  Encourage managers to file tax reports 
B)  Encourage managers to minimise taxes 
C)  Improve information reported to the ASIC 
D)  Remove bias from the EVA calculation 
A)  Encourage managers to file tax reports 
B)  Encourage managers to minimise taxes 
C)  Improve information reported to the ASIC 
D)  Remove bias from the EVA calculation

Question 16

The Victorian Division of WDY reported net profit of $2,500, operating profit of $4,000, average equity of $24,000, and average operating assets of $30,000 in a recent accounting period. If Victoria's required rate of return is 12%, its residual income was

Accepted Answer

A)  $380 
B)  $(380) 
C)  $400 
D)  $1,100 
A)  $380 
B)  $(380) 
C)  $400 
D)  $1,100

Question 17

Among the responsibility centres listed, which type of responsibility centre is most likely to use growth in sales as a performance measure?

Accepted Answer

A)  Cost 
B)  Profit 
C)  Revenue 
D)  Investment 
A)  Cost 
B)  Profit 
C)  Revenue 
D)  Investment

Question 18

Which of the following responsibility centres can be evaluated using residual income?

Accepted Answer

A)  Cost centres 
B)  Profit centres 
C)  Revenue centres 
D)  Investment centres 
A)  Cost centres 
B)  Profit centres 
C)  Revenue centres 
D)  Investment centres

Question 19

Teresa's Taco Ltd had the following results during the most recent year: Sales $500,000; Residual income $5,000; investment turnover 2.5; and a required rate of return of 15%. The operating (pretax) profit was

Accepted Answer

A)  $30,500 
B)  $192,500 
C)  $35,000 
D)  $16,250 
A)  $30,500 
B)  $192,500 
C)  $35,000 
D)  $16,250

Question 20

Efficiency measures, such as number of new products developed, may be more useful than financial measures in

Accepted Answer

A)  Profit centres. 
B)  Discretionary cost centres. 
C)  Revenue centres. 
D)  Investment centres. 
A)  Profit centres. 
B)  Discretionary cost centres. 
C)  Revenue centres. 
D)  Investment centres.

The price used to record exchanges of goods and services inside an organisation is called a

Return on investment cannot be used effectively to evaluate profit centres because it motivates managers to make suboptimal decisions from the viewpoint of the organisations' owners.

Investment centre managers are held responsible only for their costs.

A transfer price is required only when goods or services are transferred between cost centres in the same organisation.

The Gold Coast Division of Vallance Ltd produces and sells a product to outside and internal customers. Per-unit data collected from its operations include: If the Gold Coast Division has excess capacity available to meet an internal order, what transfer price should be set?

Division A of Sibley Ltd has operating data as follows: Division B wants to purchase units from Division A. If Division A agrees to sell units to Division B, A's variable costs will be $5 less per unit. If Division A is operating at capacity, what is the minimum price it should charge?

An ideal transfer price would be the opportunity cost of internal transfers.

Division A of Sibley Ltd has operating data as follows: B wants to purchase units from Division A. If Division A agrees to sell units to Division B, A's variable costs will be $5 less per unit. If Division A has capacity available to meet B's requirements, what is the minimum price it should charge?

A transfer pricing policy based on market price

Residual income measures a company's profits given a required rate of return.

Setting transfer prices can be especially problematic when

Economic value added uses "adjusted after-tax operating profit" as one of its inputs. One purpose of using after-tax profit, rather than operating profit, is to B

The Victorian Division of WDY reported net profit of $2,500, operating profit of $4,000, average equity of $24,000, and average operating assets of $30,000 in a recent accounting period. If Victoria's required rate of return is 12%, its residual income was

Among the responsibility centres listed, which type of responsibility centre is most likely to use growth in sales as a performance measure?

Which of the following responsibility centres can be evaluated using residual income?

Teresa's Taco Ltd had the following results during the most recent year: Sales $500,000; Residual income $5,000; investment turnover 2.5; and a required rate of return of 15%. The operating (pretax) profit was

Efficiency measures, such as number of new products developed, may be more useful than financial measures in

The Role of Accounting Information in Management Decision Making

Cost Concepts, Behaviour and Estimation

A Costing Framework and Cost Allocation

Cost-Volume-Profit Cvp Analysis

Job Costing Systems

Process Costing Systems

Absorption, Variable and Throughput Costing

Activity Analysis: Costing and Management

Relevant Costs for Decision Making

Standard Costs, Flexible Budgets and Variance Analysis

Operational Budgets

Strategy and Control

Planning and Budgeting for Strategic Success

Capital Budgeting and Strategic Investment Decisions

The Strategic Management of Costs and Revenues

Strategic Management Control: a Lean Perspective

The Balanced Scorecard and Strategy Maps

Rewards, Incentives and Risk Management

Sustainability Management Accounting

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Exam 17: Responsibility Accounting, Performance Evaluation and Transfer Pricing

The price used to record exchanges of goods and services inside an organisation is called a

Return on investment cannot be used effectively to evaluate profit centres because it motivates managers to make suboptimal decisions from the viewpoint of the organisations' owners.

Investment centre managers are held responsible only for their costs.

A transfer price is required only when goods or services are transferred between cost centres in the same organisation.

The Gold Coast Division of Vallance Ltd produces and sells a product to outside and internal customers. Per-unit data collected from its operations include: If the Gold Coast Division has excess capacity available to meet an internal order, what transfer price should be set?

Division A of Sibley Ltd has operating data as follows: Division B wants to purchase units from Division A. If Division A agrees to sell units to Division B, A's variable costs will be $5 less per unit. If Division A is operating at capacity, what is the minimum price it should charge?

An ideal transfer price would be the opportunity cost of internal transfers.

A transfer pricing policy based on market price

Residual income measures a company's profits given a required rate of return.

Setting transfer prices can be especially problematic when

Economic value added uses "adjusted after-tax operating profit" as one of its inputs. One purpose of using after-tax profit, rather than operating profit, is to B

The Victorian Division of WDY reported net profit of $2,500, operating profit of $4,000, average equity of $24,000, and average operating assets of $30,000 in a recent accounting period. If Victoria's required rate of return is 12%, its residual income was

Among the responsibility centres listed, which type of responsibility centre is most likely to use growth in sales as a performance measure?

Which of the following responsibility centres can be evaluated using residual income?

Teresa's Taco Ltd had the following results during the most recent year: Sales $500,000; Residual income $5,000; investment turnover 2.5; and a required rate of return of 15%. The operating (pretax) profit was

Efficiency measures, such as number of new products developed, may be more useful than financial measures in

The Role of Accounting Information in Management Decision Making

Cost Concepts, Behaviour and Estimation

A Costing Framework and Cost Allocation

Cost-Volume-Profit Cvp Analysis

Job Costing Systems

Process Costing Systems

Absorption, Variable and Throughput Costing

Activity Analysis: Costing and Management

Relevant Costs for Decision Making

Standard Costs, Flexible Budgets and Variance Analysis

Operational Budgets

Strategy and Control

Planning and Budgeting for Strategic Success

Capital Budgeting and Strategic Investment Decisions

The Strategic Management of Costs and Revenues

Strategic Management Control: a Lean Perspective

The Balanced Scorecard and Strategy Maps

Rewards, Incentives and Risk Management

Sustainability Management Accounting

Filters