Question 1

Which of the following types of taxes are NOT relevant to international transfer pricing?

Accepted Answer

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

Question 2

No matter how low the transfer price,the manager of the selling division should sell the division's product to other company divisions in the interests of overall company profitability.

Accepted Answer

A) True 
 B)False  False

Question 3

Provide a complete definition of a management control system.

Accepted Answer

A management control system is a means of gathering and using information to aid and
coordinate the planning and control decisions throughout an organization and to guide the
behaviour of its managers and other employees.

Question 4

Briefly describe the arm's length principle and how it applies to transfers among international divisions.

Accepted Answer

The arm's length principle maintains tha

Question 5

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 6

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 7

When the vendor division receives full cost plus a mark-up,and the buying division pays the market price,this is referred to as

Accepted Answer

A) dual pricing. 
B) market pricing. 
C) single pricing. 
D) prorated transfer pricing. 
E) competition pricing. 
A) dual pricing. 
B) market pricing. 
C) single pricing. 
D) prorated transfer pricing. 
E) competition pricing.

Question 8

Explain what transfer prices are,and what are the four criteria used to evaluate them?

Accepted Answer

Transfer prices are the prices that one

Question 9

Use the information below to answer the following question(s).
Bon Accord uses two divisions in the production of soybean burgers.Division A sells soybean paste internally to Division B,which,in turn,produces soybean burgers that sell for $5 per kilogram.Division A incurs costs of $0.75 per kilogram,while Division B incurs additional costs of $2.50 per kilogram.
-What is Bon Accord's operating income per kilogram?

Accepted Answer

A) $1.75 
B) $1.25 
C) $0.50 
D) $0 
E) $2.00 
A) $1.75 
B) $1.25 
C) $0.50 
D) $0 
E) $2.00

Question 10

The Transportation Division of Petrolia Paint Company can purchase paint from an independent producer at $12.60 per litre.The company has three divisions: Production,Transportation,and Paint.The company's Transportation Division is currently buying paint from the Paint Division for $24 per litre.Transfer prices are based on 125 percent of full cost.Which of the following would occur if the company uses dual pricing to record the Transportation Division purchases of paint from the Paint Division?

Accepted Answer

A) debit the Paint Division for $24.00 
B) credit the corporate cost account for $11.40 
C) debit the Transportation Division for $12.60 
D) credit the Paint Division for $12.60 
E) credit the Paint Division for $32.40 
A) debit the Paint Division for $24.00 
B) credit the corporate cost account for $11.40 
C) debit the Transportation Division for $12.60 
D) credit the Paint Division for $12.60 
E) credit the Paint Division for $32.40

Question 11

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:
  
-If the Assembly Division sells 100,000 pairs of shoes at a price of $60 a pair to customers,what is the company's operating income?

Accepted Answer

A) $4,400,000 
B) $3,400,000 
C) $3,000,000 
D) $2,600,000 
E) $2,400,000 
A) $4,400,000 
B) $3,400,000 
C) $3,000,000 
D) $2,600,000 
E) $2,400,000

Question 12

Which of the following is FALSE concerning profit centres and cost centres?

Accepted Answer

A) A profit centre can exist within a centralized organization. 
B) A profit centre can exist within a decentralized organization. 
C) A cost centre can exist within a centralized organization. 
D) A cost centre can exist within a decentralized organization. 
E) If a profit centre exists within a centralized organization,there cannot be any cost centres in the organization. 
A) A profit centre can exist within a centralized organization. 
B) A profit centre can exist within a decentralized organization. 
C) A cost centre can exist within a centralized organization. 
D) A cost centre can exist within a decentralized organization. 
E) If a profit centre exists within a centralized organization,there cannot be any cost centres in the organization.

Question 13

Vancouver Valley Ltd.has two divisions,Computer Services and Management Advisory Services.In addition to its external customers,each division performs work for the other division.The external fees earned by each division in the past year were $200,000 for Computer Services and $350,000 for Management Advisory Services.Computer Services worked 3,000 hours for Management Advisory Services and Management Advisory Services in turn worked 1,200 hours for Computer Services.The total costs of external services performed were $110,000 by Computer Services,and $240,000 by Management Advisory Services.
Required:
a.Determine the operating income for each division and for the company as a whole if the transfer price from Computer Services to Management Advisory Services is $15 per hour and the transfer price from Management Advisory Services to Computer Services is $12.50 per hour.
b.Determine the operating income for each division and for the company as a whole if the transfer price from each to the other is $15 per hour.
c.What are the operating income results for each division and for the company as a whole if the two divisions net their hours worked for each other and charge $12.50 per hour for the one with the excess? Which division manager prefers this arrangement?

Accepted Answer

a.
 @#IMG-DLM& 
* Computer Services = 3,000 hours

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.Th

Question 15

What is the opportunity cost for Crush Company from continuing to purchase the water from the local supplier if the company's Manitoba shipping division has sufficient idle capacity?

Accepted Answer

A) $600,000 
B) $60,000 
C) $105,000 
D) $180,000 
E) $0 
A) $600,000 
B) $60,000 
C) $105,000 
D) $180,000 
E) $0

Question 16

All of the following are benefits of decentralization EXCEPT

Accepted Answer

A) it creates greater responsiveness to local needs. 
B) it decreases management and worker morale. 
C) it leads to quicker decision making. 
D) it sharpens the focus of managers. 
E) it leads to better supplier relationships. 
A) it creates greater responsiveness to local needs. 
B) it decreases management and worker morale. 
C) it leads to quicker decision making. 
D) it sharpens the focus of managers. 
E) it leads to better supplier relationships.

Question 17

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 18

Informal management control systems include

Accepted Answer

A) incentive plans. 
B) codes of conduct. 
C) qualitative measures of performance. 
D) policies. 
E) company culture. 
A) incentive plans. 
B) codes of conduct. 
C) qualitative measures of performance. 
D) policies. 
E) company culture.

Question 19

An informal management control systems includes specific rules,procedures,and performance measures.

Accepted Answer

A) True 
 B)False

Question 20

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 them 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:
  
-Assume the transfer price for a compressor is 150% of total costs of the Compressor Division and 1,000 of the compressors are produced and transferred to the Assembly Division.The Compressor Division's operating income is

Accepted Answer

A) $31,750. 
B) $32,750. 
C) $34,750. 
D) $36,500. 
E) $49,750. 
A) $31,750. 
B) $32,750. 
C) $34,750. 
D) $36,500. 
E) $49,750.

Which of the following types of taxes are NOT relevant to international transfer pricing?

No matter how low the transfer price,the manager of the selling division should sell the division's product to other company divisions in the interests of overall company profitability.

Provide a complete definition of a management control system.

Briefly describe the arm's length principle and how it applies to transfers among international divisions.

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

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

When the vendor division receives full cost plus a mark-up,and the buying division pays the market price,this is referred to as

Explain what transfer prices are,and what are the four criteria used to evaluate them?

Which of the following is FALSE concerning profit centres and cost centres?

What is the opportunity cost for Crush Company from continuing to purchase the water from the local supplier if the company's Manitoba shipping division has sufficient idle capacity?

All of the following are benefits of decentralization EXCEPT

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

Informal management control systems include

An informal management control systems includes specific rules,procedures,and performance measures.

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

Analysis of Cost Behaviour

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

Inventory Cost Management Strategies

Capital Budgeting: Methods of Investment Analysis

Multinational Performance Measurement and Compensation

Filters

Exam 21: Transfer Pricing and Multinational Management Control Systems

Which of the following types of taxes are NOT relevant to international transfer pricing?

No matter how low the transfer price,the manager of the selling division should sell the division's product to other company divisions in the interests of overall company profitability.

Provide a complete definition of a management control system.

Briefly describe the arm's length principle and how it applies to transfers among international divisions.

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

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

When the vendor division receives full cost plus a mark-up,and the buying division pays the market price,this is referred to as

Explain what transfer prices are,and what are the four criteria used to evaluate them?

Which of the following is FALSE concerning profit centres and cost centres?

What is the opportunity cost for Crush Company from continuing to purchase the water from the local supplier if the company's Manitoba shipping division has sufficient idle capacity?

All of the following are benefits of decentralization EXCEPT

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

Informal management control systems include

An informal management control systems includes specific rules,procedures,and performance measures.

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

Analysis of Cost Behaviour

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

Inventory Cost Management Strategies

Capital Budgeting: Methods of Investment Analysis

Multinational Performance Measurement and Compensation

Filters