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

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

Axelia Corporation has two divisions,Refining and Extraction.The company's primary product is Luboil Oil.Each division's costs are provided below: The Refining Division has been operating at a capacity of 40,900 barrels a day and usually purchases 25,600 barrels of oil from the Extraction Division and 15,400 barrels from other suppliers at $64 per barrel. Assume 260 barrels are transferred from the Extraction Division to the Refining Division for a transfer price of $26 per barrel.The Refining Division sells the 260 barrels at a price of $220 each to customers.What is the operating income of both divisions together?

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

Axelia Corporation has two divisions,Refining and Extraction.The company's primary product is Luboil Oil.Each division's costs are provided below: The Refining Division has been operating at a capacity of 40,300 barrels a day and usually purchases 25,400 barrels of oil from the Extraction Division and 15,100 barrels from other suppliers at $64 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 120% of full costs?

Crush Company makes internal transfers at 155% of full cost.The Soda Refining Division purchases 41,000 containers of carbonated water per day,on average,from a local supplier,who delivers the water for $58 per container via an external shipper.To reduce costs,the company located an independent supplier in Illinois who is willing to sell 41,000 containers at $38 each,delivered to Crush Company's Shipping Division in Missouri.The company's Shipping Division in Missouri has excess capacity and can ship the 41,000 containers at a variable cost of $12.50 per container.What is the total cost of purchasing the water from the Illinois supplier and shipping it to the Soda Division?

Which of the following is true of goal congruence?

Which of the following denotes minimum transfer price?

Briefly explain each of the three methods used to determine a transfer price.

One of the problems in using one set of accounting records for tax reporting and another set of records for internal management reporting is that ________.

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.

Axelia Corporation has two divisions,Refining and Extraction.The company's primary product is Luboil Oil.Each division's costs are provided below: The Refining Division has been operating at a capacity of 40,200 barrels a day and usually purchases 25,100 barrels of oil from the Extraction Division and 15,600 barrels from other suppliers at $58 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?

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?

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

The transfer price creates revenues for the selling subunit and costs for the buying subunit affecting each subunit's operating income.

Sandra's Sheet Metal Company has two divisions.The Raw Material Division prepares sheet metal at its warehouse facility.The Finishing Division prepares the cut sheet metal into finished products for the air conditioning industry.No inventories exist in either division at the beginning of 20X8.During the year,the Raw Material Division prepared 450,000 square feet of sheet metal at a cost of $1,800,000.All the sheet metal was transferred to the Finishing Division,where additional operating costs of $1.50 per square foot were incurred.The 450,000 square feet of finished fabricated sheet metal products were sold for $3,875,000. Required: a.Determine the operating income for each division if the transfer price from Raw Material to Finishing is at a cost of $4 per square foot. b.Determine the operating income for each division if the transfer price is $6 per square foot. c.Since the Raw Materials Division sells all of its sheet metal internally to the Finishing Division,does the Raw Materials manager care what price is selected? Why? Should the Raw Materials Division be a cost center or a profit center under the circumstances?

Bedtime Bedding Company manufactures pillows.The Cover Division makes covers and the Assembly Division makes the finished products.The covers can be sold separately for $5.00.The pillows sell for $6.00.The information related to manufacturing for the most recent year is as follows: Required: Compute the operating income for each division and the company as a whole.Use market value as the transfer price.Are all managers happy with this concept? Explain.

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

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 $250 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?

Branded Shoe Company manufactures only one type of shoe and has two divisions,the Stitching Division and the Polishing Division.The Stitching Division manufactures shoes for the Polishing Division,which completes the shoes and sells them to retailers.The Stitching Division "sells" shoes to the Polishing Division.The market price for the Polishing Division to purchase a pair of shoes is $51.(Ignore changes in inventory. )The fixed costs for the Stitching Division are assumed to be the same over the range of 40,000-110,000 units.The fixed costs for the Polishing Division are assumed to be $20 per pair at 110,000 units. Assume the transfer price for a pair of shoes is 185% of total costs of the Stitching Division and 40,000 of shoes are produced and transferred to the Polishing Division.The Stitching Division's operating income is ________.

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