Question 1

Which of the following is a benefit of decentralization?

Accepted Answer

A) It creates greater responsiveness to local needs. 
B) It helps in rasing capital at a local level. 
C) It relieves top managers of accountability. 
D) It sharpens the focus of subunits and broadens the reach of top management 
A) It creates greater responsiveness to local needs. 
B) It helps in rasing capital at a local level. 
C) It relieves top managers of accountability. 
D) It sharpens the focus of subunits and broadens the reach of top management

Question 2

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.

Accepted Answer

a.Decentralization
b.Decentral

Question 3

The tariffs and customs duties governments levy on imports of products into a country also affect the transfer pricing practices of multinationals.

Accepted Answer

A) True 
 B)False

Question 4

Which of the following is a disadvantage of dual pricing?

Accepted Answer

A) It strongly preserves the autonomy of divisions,and the division managers are motivated to put forth effort to increase the operating income of their respective divisions,causing inefficiencies. 
B) The price arrived by using dual pricing has no specific relationship to either costs or the market price. 
C) It insulates managers from the realities of the marketplace because costs,not market prices,affect the revenues of the supplying division. 
D) It assumes that the minimum transfer price equals the incremental cost per unit incurred up to the point of transfer minus the opportunity cost per unit to the selling division. 
A) It strongly preserves the autonomy of divisions,and the division managers are motivated to put forth effort to increase the operating income of their respective divisions,causing inefficiencies. 
B) The price arrived by using dual pricing has no specific relationship to either costs or the market price. 
C) It insulates managers from the realities of the marketplace because costs,not market prices,affect the revenues of the supplying division. 
D) It assumes that the minimum transfer price equals the incremental cost per unit incurred up to the point of transfer minus the opportunity cost per unit to the selling division.

Question 5

An advantage of a negotiated transfer price of a product to be transferred between divisions is the ________.

Accepted Answer

A) close relationship between the negotiated price and the market price 
B) negotiated transfer price preserves divisional autonomy 
C) negotiations usually do not require much time and energy 
D) simplicity of its computations and close approximation to market price 
A) close relationship between the negotiated price and the market price 
B) negotiated transfer price preserves divisional autonomy 
C) negotiations usually do not require much time and energy 
D) simplicity of its computations and close approximation to market price

Question 6

Companies have an incentive to lower the transfer prices of products they are exporting into a country to reduce the tariffs and customs duties charged on those products.

Accepted Answer

A) True 
 B)False

Question 7

Timekeeper Corporation has two divisions,Distribution and Manufacturing.The company's primary product is high-end watches.Each division's costs are provided below:
 
The Distribution Division has been operating at a capacity of 4,010,000 units a week and usually purchases 2,005,000 units from the Manufacturing Division and 2,005,000 units from other suppliers at $15.00 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 125% of full costs?

Accepted Answer

A) $11.49 
B) $14.36 
C) $15.00 
D) $19.25 
A) $11.49 
B) $14.36 
C) $15.00 
D) $19.25

Question 8

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

Accepted Answer

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

Question 9

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

Accepted Answer

A) overall corporate profitability is usually higher 
B) it usually provides a basis for optimal decision making 
C) the divisions know the transfer price in advance 
D) it promotes subunit autonomy 
A) overall corporate profitability is usually higher 
B) it usually provides a basis for optimal decision making 
C) the divisions know the transfer price in advance 
D) it promotes subunit autonomy

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

One concern with dual pricing is that it leads to disputes about which price should be used when computing the taxable income of subunits located in different tax jurisdictions.

Accepted Answer

A) True 
 B)False

Question 12

If the selling subunit is operating at capacity,the opportunity cost of transferring a unit internally rather than selling it externally is equal to the market price minus the variable cost.

Accepted Answer

A) True 
 B)False

Question 13

The transfer-pricing method that reduces the goal-congruence problems associated with a pure cost-plus-based transfer-pricing method is the ________.

Accepted Answer

A) dual pricing 
B) market pricing 
C) single pricing 
D) distress pricing 
A) dual pricing 
B) market pricing 
C) single pricing 
D) distress pricing

Question 14

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

Accepted Answer

A) True 
 B)False

Question 15

The choice of a transfer-pricing method has minimal effect on the allocation of company-wide operating income among divisions.

Accepted Answer

A) True 
 B)False

Question 16

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

Accepted Answer

When supply outstrips demand,market pric

Question 17

Cornerstone Company has two divisions.The Bottle Division produces products that have variable costs of $3 per unit.Its 20X5 sales were 140,000 to outsiders at $5 per unit and 40,000 units to the Mixing Division at 140% of variable costs.Under a dual transfer-pricing system,the Mixing Division pays only the variable cost per unit.The fixed costs of the Bottle Division are $125,000 per year.
Mixing sells its finished products to outside customers for $11.50 per unit.Mixing has variable costs of $2.50 per unit in addition to the costs from the Bottle Division.The annual fixed costs of Mixing were $85,000.There were no beginning or ending inventories during the year.
Required:
What are the operating incomes of the two divisions and the company as a whole for the year? Explain why the company's operating income is less than the sum of the two divisions' total income.

Accepted Answer

@#IMG-DLM&_TB5540_00_TB5540_00 * 40,000 × $3 × 1.4

Question 18

The minimum transfer price equals ________.

Accepted Answer

A) opportunity costs less the additional outlay costs 
B) opportunity costs times 125% plus the additional outlay costs 
C) opportunity costs divided by the additional outlay costs 
D) incremental costs plus opportunity costs 
A) opportunity costs less the additional outlay costs 
B) opportunity costs times 125% plus the additional outlay costs 
C) opportunity costs divided by the additional outlay costs 
D) incremental costs plus opportunity costs

Question 19

Why is decentralization costly?

Accepted Answer

Decentralizing is costly because of the

Question 20

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

Accepted Answer

Unused capacity within the selling divis

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

Which of the following is a benefit of decentralization?

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.

The tariffs and customs duties governments levy on imports of products into a country also affect the transfer pricing practices of multinationals.

Which of the following is a disadvantage of dual pricing?

An advantage of a negotiated transfer price of a product to be transferred between divisions is the ________.

Companies have an incentive to lower the transfer prices of products they are exporting into a country to reduce the tariffs and customs duties charged on those products.

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

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

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

One concern with dual pricing is that it leads to disputes about which price should be used when computing the taxable income of subunits located in different tax jurisdictions.

If the selling subunit is operating at capacity,the opportunity cost of transferring a unit internally rather than selling it externally is equal to the market price minus the variable cost.

The transfer-pricing method that reduces the goal-congruence problems associated with a pure cost-plus-based transfer-pricing method is the ________.

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

The choice of a transfer-pricing method has minimal effect on the allocation of company-wide operating income among divisions.

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

The minimum transfer price equals ________.

Why is decentralization costly?

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

The Manager and Management Accounting

An Introduction to Cost Terms and Purposes

Cost-Volume-Profit Analysis

Job Costing

Activity-Based Costing and Activity-Based Management

Master Budget and Responsibility Accounting

Flexible Budgets,direct-Cost Variances,and Management Control

Flexible Budgets, overhead Cost Variances, and Management Control

Inventory Costing and Capacity Analysis

Determining How Costs Behave

Decision Making and Relevant Information

Strategy,balanced Scorecard,and Strategic Profitability Analysis

Pricing Decisions and Cost Management

Cost Allocation, customer-Profitability Analysis, and Sales-Variance Analysis

Allocation of Support-Department Costs, common Costs, and Revenues

Cost Allocation: Joint Products and Byproducts

Process Costing

Spoilage, rework, and Scrap

Balanced Scorecard: Quality and Time

Inventory Management, just-In-Time, and Simplified Costing Methods

Capital Budgeting and Cost Analysis

Performance Measurement, compensation, and Multinational Considerations

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