Deck 10: Responsibility Accounting,performance Evaluation,and Transfer Pricing

Question 1

Which of the following changes would increase return on investment (ROI)?

A)Decrease sales and expenses by the same percentage.
B)Increase total assets.
C)Increase sales and expenses by the same percentage.
D)Decrease sales and expenses by the same dollar amount.

Answer 1

C

Question 2

Which responsibility centre would have a manager responsible for revenues,costs,and investments?

A)cost centre
B)investment centre
C)profit centre
D)expense centre

Answer 2

B

Question 3

What is a manager of a cost centre responsible for?

A)making decisions regarding costs
B)making decisions regarding revenues
C)making decisions about investing in assets
D)making decisions about profits

Answer 3

A

Question 4

What is a manager of a revenue centre responsible for?

A)making decisions regarding costs
B)making decisions regarding revenues
C)making decisions about investing in assets
D)making decisions about profit

Question 5

What is the term for the delegation of decision-making authority to successively lower management levels in an organization?

A)decentralization
B)centralization
C)optimization
D)participation

Question 6

What is not controlled by a manager of a profit centre?

A)revenues
B)costs
C)investments
D)profits

Question 7

What type of responsibility centre would a manufacturing division of a company most likely be evaluated as?

A)cost centre
B)investment centre
C)revenue centre
D)asset centre

Question 8

How is return on investment (ROI)calculated?

A)operating income divided by sales
B)operating income divided by average operating assets
C)sales divided by average operating assets
D)operating asset turnover divided by the operating income margin

Question 9

Which department would be classified as a cost centre?

A)hardware department
B)men's shoes department
C)accounting department
D)automotive department

Question 10

What exists when the major functions of an organization are controlled by top management?

A)decentralization
B)centralization
C)optimization
D)participation

Question 11

Which of the following is an example of an investment centre?

A)a production department
B)a company
C)a marketing department
D)a credit department

Question 12

One of the reasons for decentralization is more timely response.What does this mean?

A)Lower-level managers are more in contact with immediate operating conditions.
B)Central management can be free to focus on strategic planning.
C)The organization determines each division's contribution to profit and exposes each division to market forces.
D)Local management both makes and implements decisions.

Question 13

Which department is likely to be an investment centre?

A)machining department
B)food products division
C)personnel department
D)accounting department

Question 14

What is an example of goal incongruence?

A)an incentive plan arranged so the managers' goals are allied with the shareholders' goals
B)managers operating the business in the best interest of the shareholders
C)tying management rewards to shareholder results
D)offering a divisional manager a bonus exclusively for increasing the divisional ROI

Question 15

Which department would be classified as a revenue centre?

A)advertising department
B)city police department
C)building and grounds department
D)sales department

Question 16

What is a manager of a cost centre responsible for?

A)delivering a quality product or service at reasonable but minimal cost
B)making decisions about investing in capital equipment
C)making decisions regarding revenue generation
D)delivering a quality service at a minimal cost

Question 17

What are both revenue centre and profit centre managers responsible for achieving?

A)budgeted revenues
B)budgeted net income
C)budgeted costs
D)budgeted contribution margin

Question 18

Which of the following would be a reason for decentralization?

A)Managers will make decisions for their own benefit,rather than the organization's benefit.
B)Upper-level managers have better access to information.
C)Upper management can spend more time focusing on strategic planning and decision making.
D)Lower-level managers with decision-making ability are less motivated.

Question 19

What is the definition of the term responsibility accounting?

A)a system that measures business unit results and compares budgeted outcome
B)a system that defines responsibility by function only
C)a system that measures the results of a manager responsible for revenues and costs
D)a system that measures actual results against a flexible budget

Question 20

What does responsibility accounting fail to consider?

A)responsibility
B)accountability
C)performance evaluation
D)static budgeting

Question 21

The following information pertains to the three divisions of Marlow Company: $\begin{array}{lrrr}& \underline{\text { Division} X} & \underline{\text { Division } Y} & \underline{ \text { Division Z }}\\\text { Sales } & ? & ? & 1,250,000 \\\text { Net operating income } & \$ 36,000 & \$ 25,000 & \$ 75,000 \\\text { Average operating assets } & 300,000 & ? & ? \\\text { Return on investment } & ? & 20 \% & 15 \% \\\text { Margin } & 0.10 & 0.05 & ? \\\text { Turnover } & 1.5 & ? & ? \\\text { Target ROI } & 15 \% & 12 \% & 10 \%\end{array}$ What is the margin for Division Z?

A)1.5%
B)6.0%
C)15.0%
D)100.0%

Question 22

Parker Corporation had sales of $250,000,income of $10,000,and an asset base of $100,000.What is the turnover?

A)0.04
B)0.25
C)2.50
D)4.00

Question 23

Patterson Company had sales of $200,000,net income of $10,000,and an asset base of $300,000.What is its margin?

A)3.3%
B)5.0%
C)66.7%
D)150.0%

Question 24

The following information pertains to the three divisions of Marlow Company:
$\begin{array}{lrrr}& \underline{\text { Division} X} & \underline{\text { Division } Y} & \underline{ \text { Division Z }}\\\text { Sales } & ? & ? & 1,250,000 \\\text { Net operating income } & \$ 36,000 & \$ 25,000 & \$ 75,000 \\\text { Average operating assets } & 300,000 & ? & ? \\\text { Return on investment } & ? & 20 \% & 15 \% \\\text { Margin } & 0.10 & 0.05 & ? \\\text { Turnover } & 1.5 & ? & ? \\\text { Target ROI } & 15 \% & 12 \% & 10 \%\end{array}$

-Refer to the figure.What are the average operating assets for Division Z?

A)$75,000
B)$187,500
C)$500,000
D)$1,250,000

Question 25

If the margin of 0.3 stayed the same and the turnover ratio of 5.0 increased by 10 percent,how would the ROI respond?

A)increase by 10 percent
B)decrease by 10 percent
C)increase by 15 percent
D)decrease by 15 percent

Question 26

If the operating asset turnover ratio increased by 30 percent and the margin increased by 20 percent,how would the divisional ROI react?

A)increase by 20 percent
B)increase by 56 percent
C)decrease by 50 percent
D)decrease by 60 percent

Question 27

Beta Division had the following information:
$$\begin{array} { l r } \text { Asset base in Beta Division } & \$ 400,000 \\\text { Net income in Beta Division } & \$ 50,000 \\\text { Weighted average cost of capital } & 12 \% \\\text { Target ROI } & 15 \% \\\text { Margin for Beta Division } & 20 \%\end{array}$$

-Refer to the figure.What is the return on investment of Beta Division?

A)12.5%
B)20.0%
C)62.5%
D)800.0%

Question 28

The following information pertains to the three divisions of Marlow Company:
$\begin{array}{lrrr}& \underline{\text { Division} X} & \underline{\text { Division } Y} & \underline{ \text { Division Z }}\\\text { Sales } & ? & ? & 1,250,000 \\\text { Net operating income } & \$ 36,000 & \$ 25,000 & \$ 75,000 \\\text { Average operating assets } & 300,000 & ? & ? \\\text { Return on investment } & ? & 20 \% & 15 \% \\\text { Margin } & 0.10 & 0.05 & ? \\\text { Turnover } & 1.5 & ? & ? \\\text { Target ROI } & 15 \% & 12 \% & 10 \%\end{array}$

-Refer to the figure.What are the sales for Division Y?

A)$25,000
B)$125,000
C)$208,333
D)$500,000

Question 29

If the National Division of Canadian Products Company had a turnover ratio of 4.2 and a margin of 0.10,what would be the return on investment?

A)23.8%
B)42.0%
C)238.0%
D)420.0%

Question 30

Correll Company has two divisions, A and B. Information for each division is as follows:
$\begin{array}{lcc}& \underline{\text { A}}& \underline{\text { B}}\\\text { Net earnings for division } & \$ 40,000 & \$ 260,000 \\\text { Asset base for division } & \$ 100,000 & \$ 1,200,000 \\\text { Target rate of return } & 15 \% & 18 \% \\\text { Margin } & 10 \% & 20 \% \\\text { Weighted average cost of capital } & 12 \% & 12 \%\end{array}$

-Refer to the figure.What is the total sales amount for B?

A)$666,667
B)$800,000
C)$1,200,000
D)$1,300,000

Question 31

Correll Company has two divisions, A and B. Information for each division is as follows:
$\begin{array}{lcc}& \underline{\text { A}}& \underline{\text { B}}\\\text { Net earnings for division } & \$ 40,000 & \$ 260,000 \\\text { Asset base for division } & \$ 100,000 & \$ 1,200,000 \\\text { Target rate of return } & 15 \% & 18 \% \\\text { Margin } & 10 \% & 20 \% \\\text { Weighted average cost of capital } & 12 \% & 12 \%\end{array}$

-Refer to the figure.What is EVA for Division A?

A)$15,000
B)$25,000
C)$28,000
D)$40,000

Question 32

The following information pertains to the three divisions of Marlow Company:
$\begin{array}{lrrr}& \underline{\text { Division} X} & \underline{\text { Division } Y} & \underline{ \text { Division Z }}\\\text { Sales } & ? & ? & 1,250,000 \\\text { Net operating income } & \$ 36,000 & \$ 25,000 & \$ 75,000 \\\text { Average operating assets } & 300,000 & ? & ? \\\text { Return on investment } & ? & 20 \% & 15 \% \\\text { Margin } & 0.10 & 0.05 & ? \\\text { Turnover } & 1.5 & ? & ? \\\text { Target ROI } & 15 \% & 12 \% & 10 \%\end{array}$

-Refer to the figure.What is the turnover for Division Z?

A)0.150
B)1.500
C)2.500
D)6.670

Question 33

If a company has sales of $2,500,000,net income of $250,000,and an asset base of $1,250,000,what is its return on investment?

A)10%
B)20%
C)200%
D)500%

Question 34

If the operating asset turnover increased by 50 percent and the margin increased by 50 percent,by how much would the ROI increase?

A)25 percent
B)50 percent
C)100 percent
D)125 percent

Question 35

Which of the following would increase return on investment (ROI)?

A)Decrease sales and expenses by the same percentage.
B)Increase total assets.
C)Increase sales dollars with no change in total assets.
D)Decrease sales and expenses by the same dollar amount.

Question 36

Beta Division had the following information: $$\begin{array} { l r } \text { Asset base in Beta Division } & \$ 400,000 \\\text { Net income in Beta Division } & \$ 50,000 \\\text { Weighted average cost of capital } & 12 \% \\\text { Target RoI } & 15 \% \\\text { Margin for Beta Division } & 20 \%\end{array}$$ If the asset base is decreased by $100,000,with no other changes,what will be the return on investment of Beta Division?

A)16.7%
B)62.5%
C)100.0%
D)600.0%

Question 37

The following information pertains to the three divisions of Marlow Company:
$\begin{array}{lrrr}& \underline{\text { Division} X} & \underline{\text { Division } Y} & \underline{ \text { Division Z }}\\\text { Sales } & ? & ? & 1,250,000 \\\text { Net operating income } & \$ 36,000 & \$ 25,000 & \$ 75,000 \\\text { Average operating assets } & 300,000 & ? & ? \\\text { Return on investment } & ? & 20 \% & 15 \% \\\text { Margin } & 0.10 & 0.05 & ? \\\text { Turnover } & 1.5 & ? & ? \\\text { Target ROI } & 15 \% & 12 \% & 10 \%\end{array}$

-Refer to the figure.What are the average operating assets for Division Y?

A)$5,000
B)$25,000
C)$125,000
D)$208,333

Question 38

Correll Company has two divisions,A and B.Information for each division is as follows: $\begin{array}{lcc}& \underline{\text { A}}& \underline{\text { B}}\\\text { Net earnings for division } & \$ 40,000 & \$ 260,000 \\\text { Asset base for division } & \$ 100,000 & \$ 1,200,000 \\\text { Target rate of return } & 15 \% & 18 \% \\\text { Margin } & 10 \% & 20 \% \\\text { Weighted average cost of capital } & 12 \% & 12 \%\end{array}$ What is the return on investment for A?

A)15%
B)18%
C)20%
D)40%

Question 39

Correll Company has two divisions, A and B. Information for each division is as follows:
$\begin{array}{lcc}& \underline{\text { A}}& \underline{\text { B}}\\\text { Net earnings for division } & \$ 40,000 & \$ 260,000 \\\text { Asset base for division } & \$ 100,000 & \$ 1,200,000 \\\text { Target rate of return } & 15 \% & 18 \% \\\text { Margin } & 10 \% & 20 \% \\\text { Weighted average cost of capital } & 12 \% & 12 \%\end{array}$

-Refer to the figure.What is the operating asset turnover for A?

A)0.10
B)0.15
C)2.50
D)4.00

Question 40

Beta Division had the following information:
$$\begin{array} { l r } \text { Asset base in Beta Division } & \$ 400,000 \\\text { Net income in Beta Division } & \$ 50,000 \\\text { Weighted average cost of capital } & 12 \% \\\text { Target ROI } & 15 \% \\\text { Margin for Beta Division } & 20 \%\end{array}$$

-Refer to the figure.What is the turnover ratio for Beta Division?

A)0.125
B)0.200
C)0.625
D)8.000

Question 41

Young Company has a tax rate of 40 percent. Information for the company is as follows:
$$\begin{array} { l r r } & \text { Amount } & \text { After-Tax Cost } \\\text { Mortgage bonds } & \$ 1,000,000 & 0.048 \\\text { Unsecured bonds } & 3,000,000 & 0.050 \\\text { Comman stock } & 6,000,000 & 0.150\end{array}$$

-Refer to the figure.What is the weighted cost of capital?

A)0.0366
B)0.0827
C)0.1098
D)0.2480

Question 42

What is the term for a type of fringe benefit received over and above one's salary?

A)perquisite
B)cash compensation
C)bonus based on net income
D)EVA

Question 43

The Auto Division of Big Department Store had a net income of $560,000,a net asset base of $4,000,000,and a required rate of return of 12 percent.Sales for the period totalled $3,000,000.What is the residual income for the period?

A)$80,000
B)$120,000
C)$360,000
D)$480,000

Question 44

Which of the following is an advantage of the ROI performance measure?

A)It encourages excessive investment in operating assets.
B)It encourages managers to keep the fixed assets that the division already owns.
C)It encourages myopic behaviour.
D)It encourages cost efficiency.

Question 45

What is the term for after-tax operating profit minus the total annual cost of capital?

A)ROI
B)residual income
C)EVA
D)net income

Question 46

What formula is used to calculate economic value added?

A)After-tax operating income + (Weighted average cost of capital * Total capital employed)
B)After-tax operating income * Weighted average cost of capital
C)After-tax operating income - (Weighted average cost of capital * Total capital employed)
D)Total capital employed - (Weighted average cost of capital * After-tax operating income)

Question 47

Correll Company has two divisions, A and B. Information for each division is as follows:
$\begin{array}{lcc}& \underline{\text { A}}& \underline{\text { B}}\\\text { Net earnings for division } & \$ 40,000 & \$ 260,000 \\\text { Asset base for division } & \$ 100,000 & \$ 1,200,000 \\\text { Target rate of return } & 15 \% & 18 \% \\\text { Margin } & 10 \% & 20 \% \\\text { Weighted average cost of capital } & 12 \% & 12 \%\end{array}$

-Refer to the figure.What is EVA for Division B?

A)$44,000
B)$116,000
C)$144,000
D)$216,000

Question 48

What two separate components can return on investment be divided into?

A)margin and profit
B)margin and turnover
C)value and turnover
D)liquidity and value

Question 49

How does EVA encourage the right kind of behaviour from divisions?

A)through its emphasis on after-tax net income
B)through its emphasis on total capital employed
C)through its emphasis on true cost of capital
D)through its emphasis on before-tax operating income

Question 50

Under what conditions are multiple measures of performance beneficial?

A)if they are all financial measures
B)if they include nonfinancial operating measures
C)if they focus only on short-run factors
D)if they focus only on continuous improvement

Question 51

What is the term for placing an emphasis on short-run results at the expense of the long run?

A)efficient behaviour
B)effective behaviour
C)optimal behaviour
D)myopic behaviour

Question 52

Which of the following is a disadvantage of both residual income and ROI?

A)They are both absolute measures of return.
B)They are both difficult to calculate.
C)They both do not discourage myopic behaviour.
D)They both result in a percentage.

Question 53

Beta Division had the following information: $\begin{array}{lr}\text { Asset base in Beta Division } & \$ 400,000 \\\text { Net income in Beta Division } & \$ 50,000 \\\text { Weighted average cost of capital } & 12 \% \\\text { Target ROI } & 15 \% \\\text { Margin for Beta Division } & 20 \%\end{array}$ What is EVA for Beta Division?

A)$2,000
B)$7,500
C)$48,000
D)$60,000

Question 54

The following information pertains to the three divisions of Marlow Company: $\begin{array}{lrrr}& \underline{\text { Division} X} & \underline{\text { Division } Y} & \underline{ \text { Division Z }}\\\text { Sales } & ? & ? & 1,250,000 \\\text { Net operating income } & \$ 36,000 & \$ 25,000 & \$ 75,000 \\\text { Average operating assets } & 300,000 & ? & ? \\\text { Return on investment } & ? & 20 \% & 15 \% \\\text { Margin } & 0.10 & 0.05 & ? \\\text { Turnover } & 1.5 & ? & ? \\\text { Target ROI } & 15 \% & 12 \% & 10 \%\end{array}$ What is the residual income for Division X?

A)$(36,000)
B)$(9,000)
C)$36,000
D)$45,000

Question 55

If the turnover increased by 30 percent and the margin decreased by 30 percent,how would the ROI respond?

A)decrease by 9 percent
B)increase by 69 percent
C)increase by 90 percent
D)decrease by 91 percent

Question 56

Beta Division had the following information: $\begin{array}{lr}\text { Asset base in Beta Division } & \$ 400,000 \\\text { Net income in Beta Division } & \$ 50,000 \\\text { Weighted average cost of capital } & 12 \% \\\text { Target ROI } & 15 \% \\\text { Margin for Beta Division } & 20 \%\end{array}$ What is the residual income for Beta Division?

A)$(10,000)
B)$7,500
C)$48,000
D)$60,000

Question 57

Which of the following would be a reason that managers would provide good service?

A)They may have low ability.
B)They may not prefer to work hard.
C)They may prefer to spend company resources on perquisites.
D)They may be rewarded with a perquisite for increasing return customers.

Question 58

Young Company has a tax rate of 40 percent. Information for the company is as follows:
$$\begin{array} { l r r } & \text { Amount } & \text { After-Tax Cost } \\\text { Mortgage bonds } & \$ 1,000,000 & 0.048 \\\text { Unsecured bonds } & 3,000,000 & 0.050 \\\text { Comman stock } & 6,000,000 & 0.150\end{array}$$

-Refer to the figure.What is the EVA if the before-tax operating income is $1,500,000?

A)$(198,000)
B)$402,000
C)$534,000
D)$1,134,000

Question 59

Correll Company has two divisions,A and B.Information for each division is as follows: $\begin{array}{lcc}& \underline{\text { A}}& \underline{\text { B}}\\\text { Net earnings for division } & \$ 40,000 & \$ 260,000 \\\text { Asset base for division } & \$ 100,000 & \$ 1,200,000 \\\text { Target rate of return } & 15 \% & 18 \% \\\text { Margin } & 10 \% & 20 \% \\\text { Weighted average cost of capital } & 12 \% & 12 \%\end{array}$ What is the residual income for A?

A)$15,000
B)$25,000
C)$28,000
D)$40,000

Question 60

Which of the following is a disadvantage of ROI?

A)It discourages managers from investing in projects that would decrease their ROI.
B)It discourages managers from paying careful attention to the relationships among sales,expenses,and investment.
C)It discourages cost efficiency.
D)It discourages excessive investment in operating assets.

Question 61

When there is an outside market for an intermediate product that is perfectly competitive,what is the most equitable method of transfer pricing?

A)market price
B)production cost pricing
C)variable cost pricing
D)cost plus markup pricing

Question 62

It is important to separate the evaluation of a manager from the evaluation of his or her division in a multinational firm.What should be omitted from manager's evaluation?

A)revenues
B)income taxes
C)operating costs
D)cost of goods sold

Question 63

In the Ambros Company,Division A has a product that can be sold either to outside customers or to Division B.Information about these divisions is given below: $\begin{array}{lrr}\text { Division A: }&\text { Case } 1&\text { Case } 2\\\text { Capacity in units } & 100,000 & 100,000 \\\text { Number of units sold externally } & 100,000 & 60,000 \\\text { Market selling price } & \$ 90 & \$ 75 \\\text { Variable costs per unit } & 73 & 58 \\\text { Fixed costs per unit based on capacity } & 10 & 10\\\\\text { Division B: }\\\text {Number of units needed for production}&40,000&40,000\\ \text {Purchase price per unit from external supplier}&\$91&\$74\end{array}$
The company uses the opportunity cost approach to transfer pricing.What is the maximum transfer price in Case 1?

A)$73
B)$83
C)$90
D)$91

Question 64

Division A produces a component and wants to sell it to Division B.What does the transfer price represent for each division?

A)revenue to Division A and a cost to Division B
B)revenue to Division B and a cost to Division A
C)revenue to Division A and no effect on Division B
D)a cost to Division B and no effect on Division A

Question 65

The Engine Division provides engines for the Tractor Division of a company. The standard unit costs for Engine Division are as follows:
$$\begin{array} { l r } \text { Direct materals }&\$600 \\\text { Direct labour } & 1,200 \\\text { Variable overhead } & 300 \\\text { Fixed overhead } & 150 \\\text { Market price per unit } & 2,730\end{array}$$

-Refer to the figure.What is the best transfer price to avoid transfer price problems?

A)$600
B)$1,800
C)$2,100
D)$2,730

Question 66

What is the term for the transfer price that would leave the buying division no worse off if an input is purchased from an internal division?

A)the negotiated transfer price
B)the minimum transfer price
C)the maximum transfer price
D)the coordinated transfer price

Question 67

In the Ambros Company, Division A has a product that can be sold either to outside customers or to Division B. Information about these divisions is given below:
$\begin{array}{lrr}\text { Division A: }&\text { Case } 1&\text { Case } 2\\\text { Capacity in units } & 100,000 & 100,000 \\\text { Number of units sold externally } & 100,000 & 60,000 \\\text { Market selling price } & \$ 90 & \$ 75 \\\text { Variable costs per unit } & 73 & 58 \\\text { Fixed costs per unit based on capacity } & 10 & 10\\\\\text { Division B: }\\\text {Number of units needed for production}&40,000&40,000\\ \text {Purchase price per unit from external supplier}&\$86&\$74\end{array}$


-Refer to the figure.The company uses the opportunity cost approach to transfer pricing.What is the maximum transfer price in Case 2?

A)$58
B)$68
C)$74
D)$75

Question 68

What managerial rewards encourage a short-term orientation?

A)cash bonuses
B)profit sharing
C)stock ownership
D)promotion from within

Question 69

What is the term for the transfer price that would leave the selling division no worse off if the good is sold to an internal division?

A)the negotiated transfer price
B)the minimum transfer price
C)the maximum transfer price
D)the coordinated transfer price

Question 70

In the Ambros Company, Division A has a product that can be sold either to outside customers or to Division B. Information about these divisions is given below:
$\begin{array}{lrr}\text { Division A: }&\text { Case } 1&\text { Case } 2\\\text { Capacity in units } & 100,000 & 100,000 \\\text { Number of units sold externally } & 100,000 & 60,000 \\\text { Market selling price } & \$ 90 & \$ 75 \\\text { Variable costs per unit } & 73 & 58 \\\text { Fixed costs per unit based on capacity } & 10 & 10\\\\\text { Division B: }\\\text {Number of units needed for production}&40,000&40,000\\ \text {Purchase price per unit from external supplier}&\$86&\$74\end{array}$


-Refer to the figure.The company uses the opportunity cost approach to transfer pricing.What is the minimum transfer price in Case 1?

A)$73
B)$83
C)$86
D)$90

Question 71

Why might it be misleading to compare the ROI of international divisions?

A)the absence of activity-based management
B)differing production technologies
C)the lack of good information
D)differing environmental factors

Question 72

In the Ambros Company, Division A has a product that can be sold either to outside customers or to Division B. Information about these divisions is given below:
$\begin{array}{lrr}\text { Division A: }&\text { Case } 1&\text { Case } 2\\\text { Capacity in units } & 100,000 & 100,000 \\\text { Number of units sold externally } & 100,000 & 60,000 \\\text { Market selling price } & \$ 90 & \$ 75 \\\text { Variable costs per unit } & 73 & 58 \\\text { Fixed costs per unit based on capacity } & 10 & 10\\\\\text { Division B: }\\\text {Number of units needed for production}&40,000&40,000\\ \text {Purchase price per unit from external supplier}&\$86&\$74\end{array}$


-Refer to the figure.The company uses the opportunity cost approach to transfer pricing.Which case should be transferred internally?

A)Case 1
B)Case 2
C)neither
D)both

Question 73

What are transfer prices?

A)the prices charged for distributing goods from one warehouse to another
B)the prices charged for the goods produced by one division to another division that needs these goods
C)the prices charged when delivering goods to the customer
D)the prices charged when transferring goods to international divisions

Question 74

Which are examples of perquisites?

A)nice office and salary
B)use of a company jet and nice office
C)salary and country club memberships
D)use of company jet and wages

Question 75

Which of the following is a political or legal factor affecting performance evaluation in a multinational firm?

A)social attitude toward industry and business
B)literacy rate
C)effect of defence policy
D)currency restrictions

Question 76

In the Ambros Company, Division A has a product that can be sold either to outside customers or to Division B. Information about these divisions is given below:
$\begin{array}{lrr}\text { Division A: }&\text { Case } 1&\text { Case } 2\\\text { Capacity in units } & 100,000 & 100,000 \\\text { Number of units sold externally } & 100,000 & 60,000 \\\text { Market selling price } & \$ 90 & \$ 75 \\\text { Variable costs per unit } & 73 & 58 \\\text { Fixed costs per unit based on capacity } & 10 & 10\\\\\text { Division B: }\\\text {Number of units needed for production}&40,000&40,000\\ \text {Purchase price per unit from external supplier}&\$86&\$74\end{array}$


-Refer to the figure.The company uses the opportunity cost approach to transfer pricing.What is the minimum transfer price in Case 2?

A)$58
B)$68
C)$74
D)$75

Question 77

Which of the following managerial rewards is a long-term reward?

A)stock ownership
B)cash bonuses
C)stock options
D)salary

Question 78

What is important to keep separate from the evaluation of the division?

A)the evaluation of the competition
B)the evaluation of the other division managers
C)the evaluation of the CEO
D)the evaluation of the manager of the division

Question 79

The Engine Division provides engines for the Tractor Division of a company. The standard unit costs for Engine Division are as follows:
$$\begin{array} { l r } \text { Direct materals }&\$600 \\\text { Direct labour } & 1,200 \\\text { Variable overhead } & 300 \\\text { Fixed overhead } & 150 \\\text { Market price per unit } & 2,730\end{array}$$

-Refer to the figure. The Engine Division has excess capacity.What is the best transfer price to avoid transfer price problems?

A)$300
B)$900
C)$1,350
D)$2,100

Question 80

What is the term for the right to buy a certain number of shares of a company's stock at a particular price?

A)stock option
B)cash compensation
C)stock-based compensation
D)perquisite