Exam 22: Management Control Systems, transfer Pricing, and Multinational Considerations

Which of the following is true of hybrid transfer prices?

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

The president of Silicon Company has just returned from a week of professional development courses and is very excited that she will not have to change the organization from a centralized structure to a decentralized structure just to have responsibility centers.However,she is somewhat confused about how responsibility centers relate to centralized organizations where a few managers have most of the authority. Required: Explain how a centralized organization might allow for responsibility centers.

DesMoines Valley Company has two divisions,Computer Services and Consultancy Services.In addition to their external customers,each division performs work for the other division.The external fees earned by each division in 20X5 were $200,000 for Computer Services and $350,000 for Consultancy Services.Computer Services worked 3,000 hours for Consultancy Services,who,in turn,worked 1,200 hours for Computer Services.The total costs of external services performed by Computer Services were $110,000 and $240,000 by Consultancy 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 Consultancy Services is $15 per hour and the transfer price from Consultancy 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 between divisions is $17 per hour. c.What are the operating income results for each division and for the company as a whole if the two divisions net the hours worked for each other and charge $12.50 per hour for the one with the excess? Which division manager prefers this arrangement?

What is the role of unused capacity within the selling division in the determination of a negotiated transfer price to another division?

A company should use cost-based transfer prices ________.

A benefit of using a market-based transfer price is that the ________.

Cost based transfer prices are the only price that a firm should use when transferring goods from one subunit to another subunit.

Negotiated transfer prices are often employed when ________.

Answer the following questions using the information below: Plish Company manufactures only one type of washing machine and has two divisions, the Compressor Division, and the Fabrication Division. The Compressor Division manufactures compressors for the Fabrication Division, which completes the washing machine and sells it to retailers. The Compressor Division "sells" compressors to the Fabrication Division. The market price for the Fabrication Division to purchase a compressor is $40.00. (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 Fabrication Division are assumed to be $7.50 per unit at 10,000 units. Compressor's costs per compressor are: Direct materials \ 15.00 Direct labor \ 7.25 Variable overhead \ 3.00 Division fixed costs \ 7.50 Fabrication's costs per completed air conditioner are: Direct materials \ 150.00 Direct labor \ 62.50 Variable overhead \ 20.00 Division fixed costs \ 7.50 -What is the transfer price per compressor from the Compressor Division to the Fabrication Division if the method used to place a value on each compressor is 150% of variable costs?

The formal management control system includes the shared values,loyalties,and mutual commitments among members of the organization.

How does cost-based transfer price method help managers to determine transfer prices?

Which of the following is a responsibility center to measure the revenues and costs of subunits in centralized or decentralized companies?

What are distress prices and which transfer prices should be used for judging performance if distress prices prevail?

The Fabrication Division of American Car Company has offered to purchase 90,000 batteries from the Electrical Division for $104 per unit.At a normal volume of 250,000 batteries per year,production costs per battery are as follows: Direct materials \ 40 Direct manufacturing labor 30 Variable factory overhead 12 Fixed factory overhead Total \ 112 The Electrical Division has been selling 250,000 batteries per year to outside buyers at $136 each; capacity is 350,000 batteries per year.The Fabrication Division has been buying batteries from outside sources for $130 each. Required: a.Should the Electrical Division manager accept the offer? Explain. b.From the company's perspective,will the internal sales be of any benefit? Explain.

"Management control systems consist of formal and informal control systems." Briefly explain the formal and informal management systems and enlist their components.

To reduce the excessive focus of subunit managers on their own subunits,many companies compensate subunit managers on the basis of ________.

A product may be passed from one subunit to another subunit in the same organization.The product is known as a(n)________.

Which of the following is a disadvantage of dual pricing?

In a profit center,the manager is accountable for investments,revenues,and costs.