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

An advantage of decentralization is that it ________.

For each of the following,identify whether it BEST relates to market-based,cost-based,negotiated,or all types of transfer pricing. ___a. Bargaining between selling and buying units ___b. Budgeted costs ___c. $145 \%$ of full costs ___d. Internal product transfers are required if goods are available internally ___e. Manufacturing costs plus marketing costs plus distribution costs plus customer service costs ___f. Prices listed in a trade journal ___g. Selling price less normal sales com missions ___h. Variable manufacturing cost plus a markup

Answer the following questions using the information below: Division A sells ground veal internally to Division B, which in turn, produces veal burgers that sell for $10 per pound. Division A incurs costs of $1.25 per pound while Division B incurs additional costs of $5.00 per pound. -Which of the following formulas correctly reflects the company's operating income per pound?

For each of the following activities,characteristics,and applications,identify whether they can be found in a centralized organization,a decentralized organization,or both types of organizations. ___a. Freedom for managers at lower organizational levels to make decisions ___b. Gathering information may be very expensive ___c. Greater responsiveness to user needs ___d. Have few interdependencies among divisions ___e. Maximum constraints and minimum freedom for managers at lowest levels ___f. Maximization of benefits over costs ___g. Minimization of duplicate functions ___h. Minimum of suboptimization ___i. Multiple responsibility centers with various reporting units ___j. Profit centers

Which of the following best describes a transfer price?

Which of the following is a benefit of decentralization?

Minimum transfer price can be arrived at by adding incremental cost per unit incurred up to the point of transfer with the markup required.

Which of the following is a disadvantage of using negotiated transfer price?

The range over which two divisions will negotiate a transfer price is ________.

Which of the following is true of goal congruence?

The Mill Flow Company has two divisions.The Cutting Division prepares timber at its sawmills.The Coating Division prepares the cut lumber into finished wood for the furniture industry.No inventories exist in either division at the beginning of 20X5.During the year,the Cutting Division prepared 60,000 cords of wood at a cost of $660,000.All the lumber was transferred to the Coating Division,where additional operating costs of $5 per cord were incurred.The 600,000 boardfeet of finished wood were sold for $2,500,000. Required: a.Determine the operating income for each division if the transfer price from Cutting to Coating is at cost - $11 a cord. b.Determine the operating income for each division if the transfer price is $9 per cord. c.Since the Cutting Division sells all of its wood internally to the Coating Division,does the manager care what price is selected? Why? Should the Cutting Division be a cost center or a profit center under the circumstances?

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

Effort refers to physical exertion,such as a worker producing at a faster rate,but excludes non-physical aspects like acumen and diligence of a worker.

Answer the following questions using the information below: Timekeeper Corporation has two divisions, Distribution and Manufacturing. The company's primary product is high-end watches. Each division's costs are provided below: Manufacturing: Variable costs per unit \ 1.00 Fixed costs per unit \ 5.00 Distribution: Variable costs per unit \ 0.60 Fiæed costs per unit \ 0.40 The Distribution Division has been operating at a capacity of 4,000,000 units a week and usually purchases 2,000,000 units from the Manufacturing Division and 2,000,000 units from other suppliers at $9.00 per unit. -What is the transfer price per watch from the Manufacturing Division to the Distribution Division,assuming the method used to place a value on each transfer is 120% of full costs?

A transfer price based on the full cost plus a markup may lead to suboptimal decisions because ________.

A major advantage of using actual costs for transfer prices is that often inefficiencies are NOT passed along to the receiving division.

When there is unused capacity,________.

A company has a plant in a high tax jurisdiction that produces products for a facility in a low tax jurisdiction.Suggest a strategy,including transfer prices,which will result in the lowest tax for the overall corporation.

For each of the following Balanced Scorecard measures,identify which of the four perspectives (Financial,Customer,Internal Business Process,or Learning and Growth)the measure best represents. ___a. On-time delivery of gasoline from refineries to retail stations ___b. Customer satisfaction ___c. Common stock price ___d. Return on investment ___e. Market share ___f. Num ber of days lost to accidents ___g. Employee satisfaction ___h. Friendliness of employees ___i. Repeat purchases ___j. Cash flow from operations

Which of the following sections of U.S.Internal Revenue Code govern how multinationals can set transfer prices for tax purposes?