Exam 19: Management Control Systems, Transfer Pricing and Multinational Considerations

Answer the following questions using the information below: Calculate the Division operating profit for the Don's Cricket Bat Company which manufactures cricket bats.It has two divisions: the Bat Blade Division and the Assembly Division.The Bat Blade Division manufactures blades for the Assembly Division,which splices handles to the blades and sells the completed bats to retailers.The Bat Blade Division 'sells' blades to the Assembly Division.The market price for the Assembly Division to purchase a blade is $40.(Ignore changes in inventory. )The fixed costs for the Bat Blade Division are assumed to be the same over the range of 20 000-50 000 units.The fixed costs for the Assembly Division are assumed to be $14 per bat at 50 000 units. Costs per blade are: Direct materials \ 8 Direct labour \ 6 Variable overhead \ 4 Division fixed costs \ 2 Assembly's costs per completed bat are: Direct materials \ 12 Direct labour \ 4 Variable overhead \ 1 Division fixed costs \ 14 -Assume the transfer price for a blade is 180% of total costs of the Bat Blade Division and 40 000 blades are produced and transferred to the Assembly Division.The Bat Blade Division's operating profit is:

(Multiple Choice)

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Question 81

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

(True/False)

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Question 82

What is an advantage of a negotiated transfer price?

(Multiple Choice)

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Question 83

Which of the following transfer-pricing methods is likely to be best for evaluating subunit performance in a competitive market?

(Multiple Choice)

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Question 84

If a firm uses a cost-based transfer price,its selling division will never be able to achieve goal congruence.

(True/False)

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Question 85

In analysing transfer prices,the:

(Multiple Choice)

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Question 86

Cost-based transfer pricing is a better method when the products being transferred are specialised in nature.

(True/False)

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Question 87

decentralisation is defined as the degree of freedom to make decisions:

(True/False)

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Question 88

The transfer-pricing method that reduces the goal-congruence problems associated with a pure cost-plus-based transfer-pricing method is:

(Multiple Choice)

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Question 89

Suboptimal decision making is also called 'congruent decision making'.

(True/False)

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Question 90

Answer the following questions using the information below: NSW Farmers Coop has two divisions: Distribution and Production.The company's primary product is fertiliser.Each division's costs are provided below: Production: Variable costs per kilo \ 0.05 Fixed costs per kilo \ 0.25 Distribution: Variable costs per kilo \ 0.03 Fixed costs per kilo \ 0.02 The Distribution Division has been operating at a capacity of 4 000 000 kilos a week and usually purchases 2 000 000 kilos from the Production Division and 2 000 000 kilos from other suppliers at $0.45 per kilo. -What is the transfer price per kilo from the Production Division to the Distribution Division,assuming the method used to place a value on each kilo of fertiliser is 120% of full costs,what is the transfer price per kilo from the Production Division to the Distribution Division?

(Multiple Choice)

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Question 91

Penrith Chocolate Company makes internal transfers at 160% of full cost.The Dairy Milk Division purchases 4000 litres of milk per day,on average,from a local supplier who delivers the milk for $2.00 per litre via an external shipper.To reduce costs,the company located an independent supplier in Victoria who is willing to sell 4000 litres at $1.50 per litre,delivered to Penrith Chocolate Company's Shipping Division in Penrith.The company's Shipping Division in Penrith has excess capacity and can ship the 4000 litres at a variable cost of $0.45 per litre.What is the total cost of purchasing the milk from the Victorian supplier and shipping it to the Dairy Milk Division?

(Multiple Choice)

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Question 92

Answer the following questions using the information below: Calculate the Division operating profit for the Don's Cricket Bat Company which manufactures cricket bats.It has two divisions: the Bat Blade Division and the Assembly Division.The Bat Blade Division manufactures blades for the Assembly Division,which splices handles to the blades and sells the completed bats to retailers.The Bat Blade Division 'sells' blades to the Assembly Division.The market price for the Assembly Division to purchase a blade is $40.(Ignore changes in inventory. )The fixed costs for the Bat Blade Division are assumed to be the same over the range of 20 000-50 000 units.The fixed costs for the Assembly Division are assumed to be $14 per bat at 50 000 units. Costs per blade are: Direct materials \ 8 Direct labour \ 6 Variable overhead \ 4 Division fixed costs \ 2 Assembly's costs per completed bat are: Direct materials \ 12 Direct labour \ 4 Variable overhead \ 1 Division fixed costs \ 14 -Actual costs are the only costs used in cost-based transfer prices.

(True/False)

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Question 93

The freedom for managers at lower levels of the organisation to make decisions is referred to as 'decentralisation'.

(True/False)

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Question 94

The costs used in cost-based transfer prices:

(Multiple Choice)

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Question 95

A benefit of decentralisation should be increased motivation of subunit managers.

(True/False)

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Question 96

Briefly explain each of the three methods used to determine a transfer price. _ _

(Essay)

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Question 97

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

(True/False)

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Question 98

The Home Appliances Company makes all types of kitchen appliances.The Induction Cooktops Division is currently producing 10 000 cooktops per year with a capacity of 15 000.The variable costs assigned to each cooktop are $450 and annual fixed costs of the division are $1 350 000.The Induction Cooktop sells for $600. The Executive Division wants to buy 5000 cooktops at $420 for its custom home design business.The Induction Cooktops 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 cooktop from $135 to $90 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 Induction Cooktops Division? Why? b.From the perspective of the Induction Cooktops Division and the company,should the order be accepted if the Executive Division plans on selling the cooktops in the outside market for $630 after incurring additional costs of $150 per cooktop? c.What action should the company CEO take? _ _

(Essay)

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Question 99

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

(True/False)

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Question 100

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

What is an advantage of a negotiated transfer price?

Which of the following transfer-pricing methods is likely to be best for evaluating subunit performance in a competitive market?

If a firm uses a cost-based transfer price,its selling division will never be able to achieve goal congruence.

In analysing transfer prices,the:

Cost-based transfer pricing is a better method when the products being transferred are specialised in nature.

decentralisation is defined as the degree of freedom to make decisions:

The transfer-pricing method that reduces the goal-congruence problems associated with a pure cost-plus-based transfer-pricing method is:

Suboptimal decision making is also called 'congruent decision making'.

The freedom for managers at lower levels of the organisation to make decisions is referred to as 'decentralisation'.

The costs used in cost-based transfer prices:

A benefit of decentralisation should be increased motivation of subunit managers.

Briefly explain each of the three methods used to determine a transfer price. _ _

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

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

Management Accounting in Context

Different Costs for Different Purposes

Determining How Costs Behave

Costvolumeprofit Analysis

Estimating the Cost of Producing Services

Estimating the Costs of Products and Inventory

Target Costing, Managing Activities and Managing Capacity

Activity-Based Management and Activity-Based Costing

Pricing and Customer Profitability

Decision Making and Relevant Information

Budgeting, Management Control and Responsibility Accounting

Flexible Budgets, Direct Cost Variances and Management Control

Flexible Budgets, Overhead Cost Variances and Management Control

Allocation of Support-Department Costs, Common Costs and Revenues

Strategy Formation, Strategic Control and the Balanced Scorecard

Quality, Time and the Balanced Scorecard

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

Capital Budgeting and Cost Analysis

Performance Measurement, Compensation and Multinational Considerations

Measuring and Reporting Sustainability

Filters

Exam 19: Management Control Systems, Transfer Pricing and Multinational Considerations

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

What is an advantage of a negotiated transfer price?

Which of the following transfer-pricing methods is likely to be best for evaluating subunit performance in a competitive market?

If a firm uses a cost-based transfer price,its selling division will never be able to achieve goal congruence.

In analysing transfer prices,the:

Cost-based transfer pricing is a better method when the products being transferred are specialised in nature.

decentralisation is defined as the degree of freedom to make decisions:

The transfer-pricing method that reduces the goal-congruence problems associated with a pure cost-plus-based transfer-pricing method is:

Suboptimal decision making is also called 'congruent decision making'.

The freedom for managers at lower levels of the organisation to make decisions is referred to as 'decentralisation'.

The costs used in cost-based transfer prices:

A benefit of decentralisation should be increased motivation of subunit managers.

Briefly explain each of the three methods used to determine a transfer price. _____________________________________________________________________________________________ _____________________________________________________________________________________________

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

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

Management Accounting in Context

Different Costs for Different Purposes

Determining How Costs Behave

Costvolumeprofit Analysis

Estimating the Cost of Producing Services

Estimating the Costs of Products and Inventory

Target Costing, Managing Activities and Managing Capacity

Activity-Based Management and Activity-Based Costing

Pricing and Customer Profitability

Decision Making and Relevant Information

Budgeting, Management Control and Responsibility Accounting

Flexible Budgets, Direct Cost Variances and Management Control

Flexible Budgets, Overhead Cost Variances and Management Control

Allocation of Support-Department Costs, Common Costs and Revenues

Strategy Formation, Strategic Control and the Balanced Scorecard

Quality, Time and the Balanced Scorecard

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

Capital Budgeting and Cost Analysis

Performance Measurement, Compensation and Multinational Considerations

Measuring and Reporting Sustainability

Filters

Briefly explain each of the three methods used to determine a transfer price. _ _