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

TrueValue Company makes all types of office desks.The General Desk Division is currently producing 10,000 desks per year with a capacity of 15,000.The variable costs assigned to each desk are $300 and annual fixed costs of the division are $900,000.The General desk sells for $400. The Executive Division wants to buy 5,000 desks at $270 for its custom office design business.The General Desk 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 desk from $90 to $60 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 General Desk Division? Why? b.From the perspective of the General Desk Division and the company,should the order be accepted if the Executive Division plans on selling the desks in the outside market for $420 after incurring additional costs of $100 per desk? c.What action should the company president take?

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

A disadvantage of using negotiated prices is that the time and energy spent by managers haggling over transfer prices make the method too costly.

The labels profit center and cost center are dependent on the degree of centralization or decentralization in a company.

Answer the following questions using the information below: Axelia Corporation has two divisions, Refining and Extraction. The company's primary product is Luboil Oil. Each division's costs are provided below: Extraction: Variable costs per barrel of oil \ 7 Fixed costs per barrel of oil \ 5 Refining: Variable costs per barrel of oil \ 28 Fixed costs per barrel of oil \ 32 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 Extraction Division and 15,000 barrels from other suppliers at $60 per barrel. -What is the transfer price per barrel from the Extraction Division to the Refining Division,assuming the method used to place a value on each barrel of oil is 180% of variable costs?

Incongruent decision making occurs when individuals and groups work toward achieving the organization's goals even if departmental performance is adversely affected.

For each of the following statements regarding the satisfaction of transfer pricing criteria,identify whether you would expect the transfer pricing method to meet the criteria.Provide a yes,no,or sometimes for each situation. ___a. Market-Based transfer pricing achieves goal congruence. ___b. Cost-Based transfer pricing achieves goal congruence. ___c. Negotiated transfer pricing achieves goal congruence. ___d. Market-Eased transfer pricing motivates management effort. ___e. Cost-Based transfer pricing motivates management effort. ___f. Negotiated transfer pricing motivates management effort. ___g. Market-Based transfer pricing is useful for evaluating subunit performance. ___h. Cost-Based transfer pricing is useful for evaluating suburit performance. ___i. Negotiated transfer pricing is useful for evaluating subunit performance. ___j. Market-Based transfer pricing preserves subunit autonomy. ___k. Cost-Based transfer pricing preserves subunit autonomy. ___I. Negotiated transfer pricing preserves subunit autonomy.

Management control systems should be designed to support the organizational responsibilities of individual managers.

The formal management control system includes shared values,loyalties,and mutual commitments among members of the company,company culture,and norms about acceptable behavior for managers and other employees.

An advantage of using budgeted costs for transfer pricing among divisions is that ________.

A firm using a cost-based transfer price will never help have the selling division be able to achieve goal congruence.

Which of the following helps in avoiding costly transfer-pricing disputes between taxpayers and tax authorities?

The cost used in cost-based transfer prices can be actual cost or budgeted cost.