Question 1

Dual pricing reduces the goal-congruence problem associated with a pure cost-based transfer-pricing method.

Accepted Answer

A) True 
 B)False

Question 2

The Assembly Division of Hunter Valley Bicycles Company has offered to purchase 90 000 frames from the Frame Division for $170 per unit.At a normal volume of 250 000 frames per year,production costs per frame are as follows:
 $$\begin{array} { | l | r| } 
\hline \text { Direct materials } & \$ 80 \
\hline \text { Direct manufacturing labour } & 40 \
\hline \text { Variable factory overhead } & 24 \
\hline \text { Fixed factory overhead } & \underline { 40 } \
\hline \text { Total } & \$ 184 \
\hline
\end{array}$$ 
The Frame Division has been selling 250 000 frames per year to outside buyers at $230 each;capacity is
350 000 frames per year.The Assembly Division has been buying frames from outside sources for $225 each.
Required:
a.Should the Frame Division manager accept the offer? Explain.
b.From the company's perspective,will the internal sales be of any benefit? Explain.
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Accepted Answer

a.Variable cost per frame = $80 + $40 +

Question 3

The seller of a product has no idle capacity and can sell all it can produce at $11 per unit.Outlay cost is $3.Assuming the seller can sell internally,what is the opportunity cost?

Accepted Answer

A) $2 
B) $4 
C) $8 
D) $11 
A) $2 
B) $4 
C) $8 
D) $11

Question 4

When an industry has excess capacity,market prices may drop well below their historical average.If this drop is temporary,it is called:

Accepted Answer

A) dropped prices. 
B) distress prices. 
C) substitute prices. 
D) low-average prices. 
A) dropped prices. 
B) distress prices. 
C) substitute prices. 
D) low-average prices.

Question 5

Explain what transfer prices are,and identify the four criteria used to evaluate them.
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Accepted Answer

Transfer prices are the prices that one

Question 6

Answer the following questions using the information below:
Bass Strait Oil Corporation has two divisions: Refining and Production.The company's primary product is Enkoil Oil.Each division's costs are provided below:
 $$\begin{array} { l l r } 
\text { Production: } & \text { Variable costs per barrel of oil } & \$ 3 \
& \text { Fixed costs per barrel of oil } & \$ 2 \
\text { Refining: } & \text { Variable costs per barrel of oil } & \$ 10 \
& \quad \text { Fixed costs per barrel of oil } & \$ 12
\end{array}$$
 The Refining Division has been operating at a capacity of 40 000 barrels a day and usually purchases
25 000 barrels of oil from the Production Division and 15 000 barrels from other suppliers at $20 per barrel.
-What is the transfer price per barrel from the Production Division to the Refining Division,assuming the method used to place a value on each barrel of oil is 180% of variable costs?

Accepted Answer

A) $5.40 
B) $23.40 
C) $9.00 
D) $18.00 
A) $5.40 
B) $23.40 
C) $9.00 
D) $18.00

Question 7

The Airbags Division of Shepparton Motor Assemblies produces airbags that are sold to the Assembly Division and to outsiders.Operating data for the Airbags Division for 2017 are as follows:
 $$\begin{array} { | l | r | r | } 
\hline & \text { Internal Sales } & \text { External Sales } \
\hline \text { Sales: } & & \
\hline 150000 \text { airbags at } \$ 20 & \$ 3000000 & \
\hline 100000 \text { airbags at } \$ 24 & & \$ 2400000 \
\hline \text { Variable expenses at } \$ 8 & \underline { 1200000 } & \underline { 800000 } \
\hline \text { Contribution margin } & \$ 1800000 & \$ 1600000 \
\hline \text { Fixed cost (allocated in units) } & \underline { 1500000 } & \underline { 1000000 } \
\hline \text { Operating profit } & \$ 300000 & \$ 600000 \
\hline
\end{array}$$ 
The Assembly Division has just received an offer from an outside supplier to provide airbags at $8.60 each.The manager of Airbags Division is not willing to meet the $17.20 price.She argues that it costs her $18.00 to produce and sell each airbag.Sales to outside customers are at a maximum of 200 000 airbags.
Required:
a.Verify the Airbags Division's $18.00 unit cost figure.
b.Should the Airbags Division meet the outside price of $17.20? Explain.
c.Could the $17.20 price be met and still show a profit for the Airbags Division sales to the Assembly Division? Show calculations.
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Accepted Answer

a.
 \[\begin{array} { | l | r |} 
\hline

Question 8

Which of the following transfer-pricing methods motivates management effort?

Accepted Answer

A) a market-based transfer price 
B) a negotiated transfer price 
C) a cost-based transfer price based on budgeted costs 
D) All of the above. 
A) a market-based transfer price 
B) a negotiated transfer price 
C) a cost-based transfer price based on budgeted costs 
D) All of the above.

Question 9

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:
$\begin{array}{ll}
\text { Direct materials } & \$ 8 \
\text { Direct labour } & \$ 6 \
\text { Variable overhead } & \$ 4 \
\text { Division fixed costs } & \$ 2
\end{array}$

Assembly's costs per completed bat are:
$\begin{array} { l r } \text { Direct materials } & \$ 12 \ \text { Direct labour } & \$ 4 \ \text { Variable overhead } & \$ 1 \ \text { Division fixed costs } & \$ 14 \end{array}$
-Which on the following is a benefit of using a market-based transfer price?

Accepted Answer

A) Profits of the division receiving the products are sacrificed for the overall good of the corporation. 
B) Economic viability and profitability of each division can be evaluated individually. 
C) Profits of the transferring division are sacrificed for the overall good of the corporation. 
D) None of these answers are correct. 
A) Profits of the division receiving the products are sacrificed for the overall good of the corporation. 
B) Economic viability and profitability of each division can be evaluated individually. 
C) Profits of the transferring division are sacrificed for the overall good of the corporation. 
D) None of these answers are correct.

Question 10

A disadvantage of decentralisation is that it:

Accepted Answer

A) creates greater responsiveness to local needs. 
B) does not result in a duplication of activities. 
C) encourages suboptimal decision making. 
D) focuses managers' attention on the organisation as a whole. 
A) creates greater responsiveness to local needs. 
B) does not result in a duplication of activities. 
C) encourages suboptimal decision making. 
D) focuses managers' attention on the organisation as a whole.

Question 11

The desire to attain a selected goal combined with the resulting drive or pursuit toward that goal is referred to as 'motivation'.

Accepted Answer

A) True 
 B)False

Question 12

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:
 $$\begin{array} { l r l } 
\text { Production: } & \text { Variable costs per kilo } & \$ 0.05 \
& \text { Fixed costs per kilo } & \$ 0.25 \
\text { Distribution: } & \text { Variable costs per kilo } & \$ 0.03 \
& \text { Fixed costs per kilo } & \$ 0.02
\end{array}$$ 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.
-Assume 100 000 kilos are transferred from the Production Division to the Distribution Division for a transfer price of $0.40 per kilo.The Distribution Division sells the 100 000 kilos at a price of $0.55 each to customers.What is the operating profit of both divisions together?

Accepted Answer

A) $15 000 
B) $10 000 
C) $20 000 
D) $25 000 
A) $15 000 
B) $10 000 
C) $20 000 
D) $25 000

Question 13

Sandhoppers Queensland Car Company manufactures motor vehicles.The Red Car Division sells its red cars for $25 000 each to the general public.The red cars have manufacturing costs of $12 500 each for variable and $5000 each for fixed costs.The division's total fixed manufacturing costs are $25 000 000 at the normal volume of 5000 units.
The Blue Car Division has been unable to meet the demand for its cars this year.It has offered to buy 1000 cars from the Red Car Division at the full cost of $17 500.The Red Car Division has excess capacity and the 1000 units can be produced without interfering with the current outside sales of 5000.The 6000 volume is within the division's relevant operating range.
Explain whether the Red Car Division should accept the offer.
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Accepted Answer

\[\begin{array} { | l | r | } 
\hline \t

Question 14

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

Accepted Answer

(Answers may vary. )
Senior management h

Question 15

Answer the following questions using the information below:
The Betashoe Company manufactures shoes.It has two divisions: the Sole Division and the Assembly Division.The Sole Division manufactures soles for the Assembly Division,which completes the manufacturing of the shoes and sells the completed product to retailers.The Sole Division 'sells' pairs of 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 of shoes at 100 000 units.
 Costs per pair of soles are:
$\begin{array}{ll}
\text { Direct materials } & \$ 4 \
\text { Direct labour } & \$ 3 \
\text { Variable overhead } & \$ 2 \
\text { Division fixed costs } & \$ 1
\end{array}$

Assembly's costs per completed pair of shoes are:
$\begin{array} { l l } \text { Direct materials } & \$ 6 \ \text { Direct labour } & \$ 2 \ \text { Variable overhead } & \$ 1 \ \text { Division fixed costs } & \$ 7 \end{array}$
-Assume the transfer price for a pair of soles is 180% of total costs of the Sole Division and 40 000 pairs of soles are produced and transferred to the Assembly Division.The Sole Division's operating profit is:

Accepted Answer

A) $320 000 
B) $360 000 
C) $440 000 
D) $400 000 
A) $320 000 
B) $360 000 
C) $440 000 
D) $400 000

Question 16

When companies do not want to,or find it too costly to,use market prices,they typically use ________ prices,even though suboptimal decisions may occur.

Accepted Answer

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

Question 17

What is the degree of freedom to make decisions referred to as?

Accepted Answer

A) Motivation 
B) Centralisation 
C) Decentralisation 
D) Autonomy 
A) Motivation 
B) Centralisation 
C) Decentralisation 
D) Autonomy

Question 18

One of the problems in using one set of accounting records for tax reporting and another set of records for internal management reporting is that:

Accepted Answer

A) tax authorities may suspect manipulation of records. 
B) it is almost impossible to keep the records straight and hard to reconcile the books. 
C) it is illegal. 
D) Both A and B are correct. 
A) tax authorities may suspect manipulation of records. 
B) it is almost impossible to keep the records straight and hard to reconcile the books. 
C) it is illegal. 
D) Both A and B are correct.

Question 19

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:
 $$\begin{array} { l r l } 
\text { Production: } & \text { Variable costs per kilo } & \$ 0.05 \
& \text { Fixed costs per kilo } & \$ 0.25 \
\text { Distribution: } & \text { Variable costs per kilo } & \$ 0.03 \
& \text { Fixed costs per kilo } & \$ 0.02
\end{array}$$ 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 160% of variable costs?

Accepted Answer

A) $0.11 
B) $0.40 
C) $0.08 
D) $0.05 
A) $0.11 
B) $0.40 
C) $0.08 
D) $0.05

Question 20

The Micro Division of Woomera Wi-Fi produces micro chips that are sold to the Assembly Division and to outsiders.The Micro Division produces chips that have variable costs of $6 per unit.Its 2017 sales were 150 000 to outsiders at $10 per unit and 40 000 units to the Assembly Division at 140% of variable costs.Under a dual transfer-pricing system,the Assembly Division pays only the variable cost per unit.The fixed costs of the Micro Division are $250 000 per year.
Assembly Division sells its finished products to outside customers for $23 per unit.Assembly Division has variable costs of $5.00 per unit in addition to the costs from the Micro Division.The annual fixed costs of Assembly Division were $170 000.There were no beginning or ending inventories during the year.
Required:
What are the operating profits of the two divisions and the company as a whole for the year? Explain why the company's operating profit is less than the sum of the two divisions' total profits.
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Accepted Answer

* 40 000 × $6 × 1.40 = $336 00

Dual pricing reduces the goal-congruence problem associated with a pure cost-based transfer-pricing method.

The seller of a product has no idle capacity and can sell all it can produce at $11 per unit.Outlay cost is $3.Assuming the seller can sell internally,what is the opportunity cost?

When an industry has excess capacity,market prices may drop well below their historical average.If this drop is temporary,it is called:

Explain what transfer prices are,and identify the four criteria used to evaluate them. _ _

Which of the following transfer-pricing methods motivates management effort?

A disadvantage of decentralisation is that it:

The desire to attain a selected goal combined with the resulting drive or pursuit toward that goal is referred to as 'motivation'.

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

When companies do not want to,or find it too costly to,use market prices,they typically use ________ prices,even though suboptimal decisions may occur.

What is the degree of freedom to make decisions referred to as?

One of the problems in using one set of accounting records for tax reporting and another set of records for internal management reporting is that:

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

Dual pricing reduces the goal-congruence problem associated with a pure cost-based transfer-pricing method.

The seller of a product has no idle capacity and can sell all it can produce at $11 per unit.Outlay cost is $3.Assuming the seller can sell internally,what is the opportunity cost?

When an industry has excess capacity,market prices may drop well below their historical average.If this drop is temporary,it is called:

Explain what transfer prices are,and identify the four criteria used to evaluate them. _____________________________________________________________________________________________ _____________________________________________________________________________________________

Which of the following transfer-pricing methods motivates management effort?

A disadvantage of decentralisation is that it:

The desire to attain a selected goal combined with the resulting drive or pursuit toward that goal is referred to as 'motivation'.

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

When companies do not want to,or find it too costly to,use market prices,they typically use ________ prices,even though suboptimal decisions may occur.

What is the degree of freedom to make decisions referred to as?

One of the problems in using one set of accounting records for tax reporting and another set of records for internal management reporting is that:

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

Explain what transfer prices are,and identify the four criteria used to evaluate them. _ _

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