Question 1

Which of the following is a problem with the use of cost-based transfer pricing?

Accepted Answer

A)  It does not lead to optimal decisions for the firm. 
B)  There are many definitions of cost-based transfer pricing. 
C)  There are potential goal-congruence problems. 
D)  It does not lead to optimal decisions for the firm AND there are potential goal-congruence problems. 
A)  It does not lead to optimal decisions for the firm. 
B)  There are many definitions of cost-based transfer pricing. 
C)  There are potential goal-congruence problems. 
D)  It does not lead to optimal decisions for the firm AND there are potential goal-congruence problems.

Question 2

What is a negative consequence of decentralisation?

Accepted Answer

A)  Narrow focus 
B)  Services may be duplicated 
C)  Suboptimal decisions may be made 
D)  All of the given answers 
A)  Narrow focus 
B)  Services may be duplicated 
C)  Suboptimal decisions may be made 
D)  All of the given answers

Question 3

Which of the following are risks associated with self-managed work teams?
i.Deterioration in job satisfaction of team members
ii.Less opportunity to improve the quality of service
iii.Slower response time to customer needs

Accepted Answer

A)  i and ii 
B)  i and iii 
C)  ii and iii 
D)  None of the given answers 
A)  i and ii 
B)  i and iii 
C)  ii and iii 
D)  None of the given answers

Question 4

Transfer prices should not be based on actual costs because:

Accepted Answer

A)  inefficient producing divisions have higher costs of production,which would be passed on by buying divisions. 
B)  producing divisions have no incentives to control costs. 
C)  inefficient units with high costs of production have no opportunity for profit. 
D)  inefficient producing divisions have higher costs of production,which would be passed on by buying divisions AND producing divisions have no incentives to control costs. 
A)  inefficient producing divisions have higher costs of production,which would be passed on by buying divisions. 
B)  producing divisions have no incentives to control costs. 
C)  inefficient units with high costs of production have no opportunity for profit. 
D)  inefficient producing divisions have higher costs of production,which would be passed on by buying divisions AND producing divisions have no incentives to control costs.

Question 5

An opportunity cost can best be described as the:

Accepted Answer

A)  pricing of goods as per market trends 
B)  direct expenses incurred in producing goods 
C)  total difference in cost of production between two divisions 
D)  the benefit that is foregone for one alternative in order to pursue another alternative 
A)  pricing of goods as per market trends 
B)  direct expenses incurred in producing goods 
C)  total difference in cost of production between two divisions 
D)  the benefit that is foregone for one alternative in order to pursue another alternative

Question 6

Barrister Company has two divisions: A and Z.The A Division produces a single product that can be sold to outside customers or to the Z Division.Sales forecasts,production statistics and costs for both divisions for 2008 are shown below:
A Division:
Z Division:
* When A Division sells to Z Division,no variable selling costs are incurred by A Division.Calculate the minimum per unit transfer price that A Division should charge Z Division in 2008,using the general transfer-pricing formula.

Accepted Answer

A)  $6.00 
B)  $8.50 
C)  $7.26 
D)  None of the given answers 
A)  $6.00 
B)  $8.50 
C)  $7.26 
D)  None of the given answers

Question 7

Which of the following statements is/are true?
When a multinational company transfers goods or services between business units located in different countries:
i.the tax rates of the different countries will have no effect on overall company profits
ii.the result is a moving of profits from one country to another.
iii.the company will consider the tax rates of the different countries when determining the transfer price.

Accepted Answer

A)  i 
B)  ii 
C)  i and ii 
D)  ii and iii 
A)  i 
B)  ii 
C)  i and ii 
D)  ii and iii

Question 8

When management is using performance reports to evaluate the economic performance of a business unit,which of the following costs should be considered:

Accepted Answer

A)  Any costs that are attributable to the business unit 
B)  Costs that are both attributable to the business unit AND are controllable by the business unit manager 
C)  Common costs and any costs that are attributable to the business unit 
D)  Only costs controllable by the business unit manager 
A)  Any costs that are attributable to the business unit 
B)  Costs that are both attributable to the business unit AND are controllable by the business unit manager 
C)  Common costs and any costs that are attributable to the business unit 
D)  Only costs controllable by the business unit manager

Question 9

Which of the following statements best completes this sentence? 'A cost is deemed to be controllable by the manager …'

Accepted Answer

A)  who has staff authority over that cost 
B)  who has line authority over that cost 
C)  who is next in line to the financial controller of the firm 
D)  who is in the best position to influence that cost in some way 
A)  who has staff authority over that cost 
B)  who has line authority over that cost 
C)  who is next in line to the financial controller of the firm 
D)  who is in the best position to influence that cost in some way

Question 10

Which of the following statements best completes this sentence? 'The biggest challenge(s)facing all decentralised firms is …'

Accepted Answer

A)  to reap the advantages of autonomy 
B)  to attempt to ensure goal congruence 
C)  to choose the most appropriate transfer price 
D)  to reap the advantages of autonomy AND to attempt to ensure goal congruence 
A)  to reap the advantages of autonomy 
B)  to attempt to ensure goal congruence 
C)  to choose the most appropriate transfer price 
D)  to reap the advantages of autonomy AND to attempt to ensure goal congruence

Question 11

Which of the following is usually achieved when the general transfer-pricing rule is implemented?

Accepted Answer

A)  Harmony 
B)  Perfect competition 
C)  Goal congruence 
D)  Cost measurement 
A)  Harmony 
B)  Perfect competition 
C)  Goal congruence 
D)  Cost measurement

Question 12

Fruities Ltd has two divisions,Durian Division and Juice Division.Durian Division has an annual capacity of 10 000 units of durian juice concentrate.Juice Division's annual requirement of durian juice concentrate is 8000 units.There is no external market for durian juice concentrate;however,the Durian Division can use its facilities to manufacturer prune paste,which is a very popular product with unlimited external demand,at $13 per unit.The variable production cost of one unit of durian juice concentrate at Durian Division is $6,and the variable production cost of one unit of prune paste is $8.Durian division also incurs $1 additional shipping cost per unit when selling prune paste to external suppliers.Using the transfer pricing formula,what is the per unit opportunity cost of selling one unit of durian juice concentrate to Juice Division?

Accepted Answer

A)  $0 
B)  $4 
C)  $5 
D)  $12 
A)  $0 
B)  $4 
C)  $5 
D)  $12

Question 13

Which of the following managers is held accountable for the subunit's profit and invested capital?

Accepted Answer

A)  Investment centre manager 
B)  Revenue centre manager 
C)  Profit centre manager 
D)  Sales manager 
A)  Investment centre manager 
B)  Revenue centre manager 
C)  Profit centre manager 
D)  Sales manager

Question 14

The following information was taken from the business united profit and loss statement of Resell Real Estate Agents for 2008:
In addition,the company incurred common fixed costs of $18 000.What was the business unit margin of the Tamworth Division during 2008?

Accepted Answer

A)  ($8000) 
B)  $4000 
C)  $10 000 
D)  $30 000 
A)  ($8000) 
B)  $4000 
C)  $10 000 
D)  $30 000

Question 15

Fruities Ltd has two divisions,Durian Division and Juice Division.Durian Division has an annual capacity of 10 000 units of either juice concentrate or fruit paste.Usually,Durian Division produces durian juice concentrate for the Juice Division.Juice Division's annual requirement of durian juice concentrate is 8000 units.There is no external market for durian juice concentrate;however,the Durian Division can use its facilities to manufacturer prune paste,which is a very popular product with unlimited external demand.The market price for prune paste is $13 per unit.The variable production cost of one unit of durian juice concentrate at Durian Division is $6,and the variable production cost of one unit of prune paste is $8.Durian division also incurs $1 additional shipping cost per unit when selling prune paste to external suppliers.Using the transfer pricing formula,what is the per unit transfer price selling one unit of durian juice concentrate to Juice Division?

Accepted Answer

A)  $6 
B)  $8 
C)  $10 
D)  $11 
A)  $6 
B)  $8 
C)  $10 
D)  $11

Question 16

Which of the following is not a benefit of decentralisation?

Accepted Answer

A)  Specialised information about the local markets 
B)  Motivation 
C)  Relief to upper-level management 
D)  Narrow focus on the manager's own subunit 
A)  Specialised information about the local markets 
B)  Motivation 
C)  Relief to upper-level management 
D)  Narrow focus on the manager's own subunit

Question 17

Which of the following might you expect to see being used as a performance measure for a cost centre?

Accepted Answer

A)  Return on investment 
B)  Actual business unit profit compared with budget business unit profit 
C)  Standard cost variances 
D)  All of the given answers 
A)  Return on investment 
B)  Actual business unit profit compared with budget business unit profit 
C)  Standard cost variances 
D)  All of the given answers

Question 18

Callahan Company consists of two divisions,Northern and Southern.During 2008,many of the accounting records were destroyed in a fire.The managing director has asked the accountant for information relating to 2008.The following information is available to the accountant.In addition,the contribution margin ratio for both divisions was the same.What were the common fixed costs (z)during 2008?

Accepted Answer

A)  $130 000 
B)  $45 000 
C)  $70 000 
D)  $65 000 
A)  $130 000 
B)  $45 000 
C)  $70 000 
D)  $65 000

Question 19

Which of the following statements about transfer prices is/are true?
i.When the producing division has excess capacity and the external market is imperfectly competitive,the general transfer-pricing rule and the external market price will be the same
ii.If the transfer price is set at the market price,the supplying division will be indifferent to selling internally or externally.
iii.If the transfer price is set at the market price,the buying division will usually purchase goods from inside its organisation,if product specifications are met.

Accepted Answer

A)  i and ii 
B)  ii and iii 
C)  i and iii 
D)  All of the given answers 
A)  i and ii 
B)  ii and iii 
C)  i and iii 
D)  All of the given answers

Question 20

Hamilton has excess capacity.If the company wishes to implement the general transfer-pricing rule,the opportunity cost would be equal to:

Accepted Answer

A)  zero 
B)  the direct expenses incurred in producing the goods 
C)  the total difference in the cost of production between two divisions 
D)  the sum of the variable cost plus the fixed cost 
A)  zero 
B)  the direct expenses incurred in producing the goods 
C)  the total difference in the cost of production between two divisions 
D)  the sum of the variable cost plus the fixed cost

Which of the following is a problem with the use of cost-based transfer pricing?

What is a negative consequence of decentralisation?

Which of the following are risks associated with self-managed work teams? i.Deterioration in job satisfaction of team members ii.Less opportunity to improve the quality of service iii.Slower response time to customer needs

Transfer prices should not be based on actual costs because:

An opportunity cost can best be described as the:

When management is using performance reports to evaluate the economic performance of a business unit,which of the following costs should be considered:

Which of the following statements best completes this sentence? 'A cost is deemed to be controllable by the manager …'

Which of the following statements best completes this sentence? 'The biggest challenge(s)facing all decentralised firms is …'

Which of the following is usually achieved when the general transfer-pricing rule is implemented?

Which of the following managers is held accountable for the subunit's profit and invested capital?

The following information was taken from the business united profit and loss statement of Resell Real Estate Agents for 2008: In addition,the company incurred common fixed costs of $18 000.What was the business unit margin of the Tamworth Division during 2008?

Which of the following is not a benefit of decentralisation?

Which of the following might you expect to see being used as a performance measure for a cost centre?

Hamilton has excess capacity.If the company wishes to implement the general transfer-pricing rule,the opportunity cost would be equal to:

Management Accounting: Information for Creating Value and Managing Resources

Management Accounting: Cost Terms and Concepts

Cost Behaviour, Cost Drivers and Cost Estimation

Product Costing Systems

Process Costing and Operation Costing

Service Costing

A Closer Look at Overhead Costs

Activity-Based Costing

Budgeting Systems

Standard Costs for Control: Direct Material and Direct Labour

Standard Costs for Control: Flexible Budgets and Manufacturing Overhead

Financial Performance Measures and Incentive Schemes

Strategic Performance Measurement Systems

Managing Suppliers and Customers

Managing Costs and Quality

Sustainability and Management Accounting

Cost Volume Profit Analysis

Information for Decisions: Relevant Costs and Benefits

Pricing and Product Mix Decisions

Information for Capital Expenditure Decisions

Filters

Exam 12: Managing and Reporting Performance

Which of the following is a problem with the use of cost-based transfer pricing?

What is a negative consequence of decentralisation?

Which of the following are risks associated with self-managed work teams? i.Deterioration in job satisfaction of team members ii.Less opportunity to improve the quality of service iii.Slower response time to customer needs

Transfer prices should not be based on actual costs because:

An opportunity cost can best be described as the:

When management is using performance reports to evaluate the economic performance of a business unit,which of the following costs should be considered:

Which of the following statements best completes this sentence? 'A cost is deemed to be controllable by the manager …'

Which of the following statements best completes this sentence? 'The biggest challenge(s)facing all decentralised firms is …'

Which of the following is usually achieved when the general transfer-pricing rule is implemented?

Which of the following managers is held accountable for the subunit's profit and invested capital?

The following information was taken from the business united profit and loss statement of Resell Real Estate Agents for 2008: In addition,the company incurred common fixed costs of $18 000.What was the business unit margin of the Tamworth Division during 2008?

Which of the following is not a benefit of decentralisation?

Which of the following might you expect to see being used as a performance measure for a cost centre?

Hamilton has excess capacity.If the company wishes to implement the general transfer-pricing rule,the opportunity cost would be equal to:

Management Accounting: Information for Creating Value and Managing Resources

Management Accounting: Cost Terms and Concepts

Cost Behaviour, Cost Drivers and Cost Estimation

Product Costing Systems

Process Costing and Operation Costing

Service Costing

A Closer Look at Overhead Costs

Activity-Based Costing

Budgeting Systems

Standard Costs for Control: Direct Material and Direct Labour

Standard Costs for Control: Flexible Budgets and Manufacturing Overhead

Financial Performance Measures and Incentive Schemes

Strategic Performance Measurement Systems

Managing Suppliers and Customers

Managing Costs and Quality

Sustainability and Management Accounting

Cost Volume Profit Analysis

Information for Decisions: Relevant Costs and Benefits

Pricing and Product Mix Decisions

Information for Capital Expenditure Decisions

Filters