Deck 19: Management Control Systems, Transfer Pricing and Multinational Considerations

Question 1

The desire to attain a selected goal combined with the resulting drive or pursuit toward that goal is referred to as 'motivation'.

Answer 1

True

Question 2

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

Answer 2

False

Question 3

If an oil refinery used refinery down-time as a Balanced Scorecard control measure,it would represent the ________ perspective.

A)customer
B)learning and growth
C)financial
D)internal business process

Answer 3

D

Question 4

What would be considered exertion towards a goal?

A)Incentive
B)Goal congruence
C)Motivation
D)Effort

Question 5

For each of the following Balanced Scorecard measures,identify which of the four perspectives (Financial,Customer,Internal Business Process,or Learning and Growth)the measure best represents.


a.On-time delivery of petrol from refineries to retail stations
b.Customer satisfaction
c.Share price
d.Return on investment
e.Market share
f.Number of days lost to accidents
g.Employee satisfaction
h.Friendliness of employees
i.Repeat purchases
j.Cash flow from operations

Question 6

One benefit of centralisation is an increase in the development of an experienced pool of management talent to fill higher-level management positions.

Question 7

The 'unified reporting method' presents financial and non-financial information in a single report.

Question 8

Absenteeism would be an example of a Balanced Scorecard control measure from a customer perspective.

Question 9

Management control systems motivate managers and other employees to exert effort through a variety of rewards tied to the achievement of goals.

Question 10

Achievement of a goal is the definition of 'effort'.

Question 11

The goal of a management control system is to improve the collective decisions in an organisation in an economically feasible way.

Question 12

The formal management control system includes:

A)incentive plans.
B)mutual commitments.
C)performance measures.
D)Both A and C are correct.

Question 13

Which of the following is NOT a characteristic of a management control system?

A)It motivates individuals throughout the organisation to act in concert.
B)It encourages short-term profitability.
C)It aids and coordinates the process of making decisions.
D)It coordinates forecasting sales and cost-driver activities,budgeting,and measuring and evaluating performance.

Question 14

Management control systems reflect only financial data.

Question 15

A management control system would include both formal as well as informal control mechanisms.

Question 16

If a computer manufacturer used its share price as a Balanced Scorecard control measure,it would represent the ________ perspective.

A)learning and growth
B)customer
C)financial
D)internal business process

Question 17

The freedom for managers at lower levels of the organisation to make decisions is referred to as 'decentralisation'.

Question 18

Goal congruence exists when individuals work toward achieving one goal,and groups work toward achieving a different goal.

Question 19

A well-designed management control system obtains all of its information from within the company.

Question 20

What is the degree of freedom to make decisions referred to as?

A)Motivation
B)Centralisation
C)Decentralisation
D)Autonomy

Question 21

A disadvantage of decentralisation is that it:

A)creates greater responsiveness to local needs.
B)does not result in a duplication of activities.
C)encourages suboptimal decision making.
D)focuses managers' attention on the organisation as a whole.

Question 22

Products transferred between subunits within an organisation are considered intermediate products.

Question 23

decentralisation is defined as the degree of freedom to make decisions:

Question 24

Discuss the possible problems a corporation might have if its operations are totally decentralised.
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Question 25

Surveys indicate that decisions made most frequently at the corporate level are related to sources of supplies and products to manufacture.

Question 26

Suboptimal decision making is also called 'congruent decision making'.

Question 27

What is the term used to describe the situation when a manager's decision,which benefits one subunit,is more than offset by the costs to the organisation as a whole?

A)Suboptimal decision making
B)Dysfunctional decision making
C)Congruent decision making
D)Both A and B are correct.

Question 28

The benefits of a decentralised organisation are greater when a company:

A)is facing great uncertainties in their environment.
B)has few interdependencies among divisions.
C)is large and unregulated.
D)All of these answers are correct.

Question 29

Bathurst Company's CEO has just returned from a series of professional development courses and is very excited that she can have responsibility centres with the organisation's system of centralised structure.However,she is somewhat confused about how responsibility centres relate to centralised organisations where a few managers have most of the authority.
Required:
Explain how a centralised organisation might allow for responsibility centres.
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Question 30

A transfer-pricing method leads to goal congruence when managers:

A)act in their own best interest and the decision is in the short-term best interest of the company.
B)act in their own best interest and the decision is in the long-term best interest of the company.
C)act in their own best interest and the decision is in the long-term best interest of the manager's subunit.
D)always act in their own best interest.

Question 31

A benefit of decentralisation should be increased motivation of subunit managers.

Question 32

Which of the following is NOT a benefit of decentralisation?

A)Sharpens the focus of managers
B)Leads to quicker decision making
C)Decreases management and worker morale
D)Creates greater responsiveness to local needs

Question 33

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

A)subunit product
B)intermediate product
C)transfer product
D)interdepartmental product

Question 34

All of the following statements are correct,EXCEPT for:

A)The extent to which decisions are pushed downward,and the types of decisions that are pushed down,provide a measure of the level of centralisation/decentralisation in an organisation.
B)A decentralised structure forces top management to lose some control over the organisation.
C)Decentralisation slows responsiveness to local needs for decision making.
D)A centralised structure does not empower employees to handle customer complaints directly.

Question 35

________ means minimum constraints and maximum freedom for managers at the lowest levels of an organisation to make decisions and to take actions.

A)Total decentralisation
B)Use of negotiated transfer pricing
C)Use of market-based transfer pricing
D)Total centralisation

Question 36

Which of the following is an advantage of decentralisation?

A)Focuses managers' attention on the organisation as a whole
B)Does not result in a duplication of activities
C)Reduces the cost of gathering information
D)Creates greater responsiveness to local needs

Question 37

A profit centre is related to a decentralised unit,whereas a cost centre is related to a centralised unit.

Question 38

Improving corporate control is an important advantage of decentralised operations.

Question 39

For each of the following activities,characteristics,and applications,identify whether they can be found in a centralised organisation,a decentralised organisation,or both types of organisations.

a.Freedom for managers at lower organisational levels to make decisions
b.Gathering information may be very expensive
c.Greater responsiveness to user needs
d.Have few interdependencies among divisions
e.Maximum constraints and minimum freedom for managers at lowest levels
f.Maximisation of benefits over costs
g.Minimisation of duplicate functions
h.Minimum of suboptimisation
i.Multiple responsibility centres with various reporting units
j.Profit centres

Question 40

Area(s)which is/are usually appropriate for decentralised decision making is/are:

A)sources of supplies and materials.
B)long-term financing.
C)product advertising.
D)Both A and C are correct.

Question 41

Answer the following questions using the information below:
Bass Strait Oil Corporation has two divisions: Refining and Production.The company's primary product is Enkoil Oil.Each division's costs are provided below:
$$\begin{array} { l l r } \text { Production: } & \text { Variable costs per barrel of oil } & \$ 3 \\& \text { Fixed costs per barrel of oil } & \$ 2 \\\text { Refining: } & \text { Variable costs per barrel of oil } & \$ 10 \\& \quad \text { Fixed costs per barrel of oil } & \$ 12\end{array}$$
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 Production Division and 15 000 barrels from other suppliers at $20 per barrel.

-What is the transfer price per barrel from the Production Division to the Refining Division,assuming the method used to place a value on each barrel of oil is 180% of variable costs?

A)$5.40
B)$23.40
C)$9.00
D)$18.00

Question 42

Penrith Chocolate Company makes internal transfers at 160% of full cost.The Dairy Milk Division purchases 4000 litres of milk per day,on average,from a local supplier who delivers the milk for $2.00 per litre via an external shipper.To reduce costs,the company located an independent supplier in Victoria who is willing to sell 4000 litres at $1.50 per litre,delivered to Penrith Chocolate Company's Shipping Division in Penrith.The company's Shipping Division in Penrith has excess capacity and can ship the 4000 litres at a variable cost of $0.45 per litre.What is the total cost of purchasing the milk from the Victorian supplier and shipping it to the Dairy Milk Division?

A)$12 480
B)$7800
C)$6000
D)$8000

Question 43

Answer the following questions using the information below:
NSW Farmers Coop has two divisions: Distribution and Production.The company's primary product is fertiliser.Each division's costs are provided below:
$$\begin{array} { l r l } \text { Production: } & \text { Variable costs per kilo } & \$ 0.05 \\& \text { Fixed costs per kilo } & \$ 0.25 \\\text { Distribution: } & \text { Variable costs per kilo } & \$ 0.03 \\& \text { Fixed costs per kilo } & \$ 0.02\end{array}$$ The Distribution Division has been operating at a capacity of 4 000 000 kilos a week and usually purchases 2 000 000 kilos from the Production Division and 2 000 000 kilos from other suppliers at $0.45 per kilo.

-What is the transfer price per kilo from the Production Division to the Distribution Division,assuming the method used to place a value on each kilo of fertiliser is 120% of full costs,what is the transfer price per kilo from the Production Division to the Distribution Division?

A)$0.55
B)$0.36
C)$0.30
D)$0.45

Question 44

Penrith Chocolate Company makes internal transfers at 180% of full cost.The Dairy Milk Division purchases 3000 litres of milk per day,on average,from a local supplier who delivers the milk for $3 per litre via an external shipper.To reduce costs,the company located an independent supplier in Tasmania who is willing to sell 3000 litres at $2 each,delivered to Penrith Chocolate Company's Shipping Division in Penrith.The company's Shipping Division has excess capacity and can ship the 3000 litres at a variable cost of $0.25 per litre.What is the total cost to Penrith Chocolate Company if the milk is purchased from the local supplier?

A)$9000
B)$6000
C)$12 000
D)$9750

Question 45

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

Question 46

Transferring products or services at market prices generally leads to optimal decisions when:

A)there are no additional costs or benefits to the company in buying or selling in the external market.
B)the market for the intermediate product is perfectly competitive.
C)the interdependencies of the subunits are minimal.
D)All of these answers are correct.

Question 47

Answer the following questions using the information below:
The Betashoe Company manufactures shoes.It has two divisions: the Sole Division and the Assembly Division.The Sole Division manufactures soles for the Assembly Division,which completes the manufacturing of the shoes and sells the completed product to retailers.The Sole Division 'sells' pairs of soles to the Assembly Division.The market price for the Assembly Division to purchase a pair of soles is $20.(Ignore changes in inventory. )The fixed costs for the Sole Division are assumed to be the same over the range of 40 000-100 000 units.The fixed costs for the Assembly Division are assumed to be $7 per pair of shoes at 100 000 units.
Costs per pair of soles are:
$\begin{array}{ll}\text { Direct materials } & \$ 4 \\\text { Direct labour } & \$ 3 \\\text { Variable overhead } & \$ 2 \\\text { Division fixed costs } & \$ 1\end{array}$

Assembly's costs per completed pair of shoes are:
$\begin{array} { l l } \text { Direct materials } & \$ 6 \\ \text { Direct labour } & \$ 2 \\ \text { Variable overhead } & \$ 1 \\ \text { Division fixed costs } & \$ 7 \end{array}$

-If the method used to place a value on each pair of soles is 180% of variable costs,what is the transfer price per pair of soles from the Sole Division to the Assembly Division?

A)$12.60
B)$28.80
C)$16.20
D)$14.40

Question 48

No matter how low the transfer price,the manager of the selling division should sell the division's product to other company divisions in the interests of overall company profitability.

Question 49

The Fruit Drink Company makes internal transfers at 180% of full cost.The Soda Refining Division purchases 30 000 containers of carbonated water per day,on average,from a local supplier who delivers the water for $30 per container via an external shipper.To reduce costs,the company located an independent supplier in Tasmania who is willing to sell 30 000 containers at $20 each,delivered to The Fruit Drink Company's Shipping Division in Tasmania.The company's Shipping Division in Tasmania has excess capacity and can ship the 30 000 containers at a variable cost of $2.50 per container.What is the total cost to The Fruit Drink Company if the carbonated water is purchased from the local supplier?

A)$900 000
B)$1 501 000
C)$1 200 000
D)$1 620 000

Question 50

Answer the following questions using the information below:
Bass Strait Oil Corporation has two divisions: Refining and Production.The company's primary product is Enkoil Oil.Each division's costs are provided below:
$$\begin{array} { l l r } \text { Production: } & \text { Variable costs per barrel of oil } & \$ 3 \\& \text { Fixed costs per barrel of oil } & \$ 2 \\\text { Refining: } & \text { Variable costs per barrel of oil } & \$ 10 \\& \quad \text { Fixed costs per barrel of oil } & \$ 12\end{array}$$
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 Production Division and 15 000 barrels from other suppliers at $20 per barrel.

-Assume 200 barrels are transferred from the Production Division to the Refining Division for a transfer price of $6 per barrel.The Refining Division sells the 200 barrels at a price of $40 each to customers.What is the operating profit of both divisions together?

A)$2400
B)$2600
C)$6800
D)$3600

Question 51

The Fruit Drink Company makes internal transfers at 160% of full cost.The Soda Refining Division purchases 40 000 containers of carbonated water per day,on average,from a local supplier who delivers the water for $40 per container via an external shipper.To reduce costs,the company located an independent supplier in Victoria who is willing to sell 40 000 containers at $30 each,delivered to The Fruit Drink Company's Shipping Division in Tasmania.The company's Shipping Division in Tasmania has excess capacity and can ship the 40 000 containers at a variable cost of $4.50 per container.What is the total cost of purchasing the water from the Victorian supplier and shipping it to the Soda Refining Division?

A)$180 000
B)$1 380 000
C)$1 600 000
D)$1 200 000

Question 52

The costs used in cost-based transfer prices:

A)are budgeted costs.
B)are actual costs.
C)can either be actual or budgeted costs.
D)are lower than the market-based transfer prices.

Question 53

Answer the following questions using the information below:
The Betashoe Company manufactures shoes.It has two divisions: the Sole Division and the Assembly Division.The Sole Division manufactures soles for the Assembly Division,which completes the manufacturing of the shoes and sells the completed product to retailers.The Sole Division 'sells' pairs of soles to the Assembly Division.The market price for the Assembly Division to purchase a pair of soles is $20.(Ignore changes in inventory. )The fixed costs for the Sole Division are assumed to be the same over the range of 40 000-100 000 units.The fixed costs for the Assembly Division are assumed to be $7 per pair of shoes at 100 000 units.
Costs per pair of soles are:
$\begin{array}{ll}\text { Direct materials } & \$ 4 \\\text { Direct labour } & \$ 3 \\\text { Variable overhead } & \$ 2 \\\text { Division fixed costs } & \$ 1\end{array}$

Assembly's costs per completed pair of shoes are:
$\begin{array} { l l } \text { Direct materials } & \$ 6 \\ \text { Direct labour } & \$ 2 \\ \text { Variable overhead } & \$ 1 \\ \text { Division fixed costs } & \$ 7 \end{array}$

-What is the market-based transfer price per pair of soles from the Sole Division to the Assembly Division?

A)$10
B)$16
C)$20
D)$26

Question 54

Market price is the only price a firm should use when transferring goods from one subunit to another subunit.

Question 55

Explain what transfer prices are,and identify the four criteria used to evaluate them.
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Question 56

Transfer prices should be judged by whether they promote:

A)goal congruence
B)the balanced scorecard method
C)a high level of subunit autonomy in decision making
D)Both A and C are correct.

Question 57

Hybrid (negotiated)transfer prices are often employed when:

A)market prices are stable
B)market prices change by a regular percentage each year
C)market prices are volatile
D)goal congruence is not a major objective

Question 58

Answer the following questions using the information below:
Bass Strait Oil Corporation has two divisions: Refining and Production.The company's primary product is Enkoil Oil.Each division's costs are provided below:
$$\begin{array} { l l r } \text { Production: } & \text { Variable costs per barrel of oil } & \$ 3 \\& \text { Fixed costs per barrel of oil } & \$ 2 \\\text { Refining: } & \text { Variable costs per barrel of oil } & \$ 10 \\& \quad \text { Fixed costs per barrel of oil } & \$ 12\end{array}$$
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 Production Division and 15 000 barrels from other suppliers at $20 per barrel.

-What is the transfer price per barrel from the Production Division to the Refining Division,assuming the method used to place a value on each barrel of oil is 110% of full costs?

A)$5.50
B)$24.20
C)$29.70
D)$22.00

Question 59

Answer the following questions using the information below:
NSW Farmers Coop has two divisions: Distribution and Production.The company's primary product is fertiliser.Each division's costs are provided below:
$$\begin{array} { l r l } \text { Production: } & \text { Variable costs per kilo } & \$ 0.05 \\& \text { Fixed costs per kilo } & \$ 0.25 \\\text { Distribution: } & \text { Variable costs per kilo } & \$ 0.03 \\& \text { Fixed costs per kilo } & \$ 0.02\end{array}$$ The Distribution Division has been operating at a capacity of 4 000 000 kilos a week and usually purchases 2 000 000 kilos from the Production Division and 2 000 000 kilos from other suppliers at $0.45 per kilo.

-Assume 100 000 kilos are transferred from the Production Division to the Distribution Division for a transfer price of $0.40 per kilo.The Distribution Division sells the 100 000 kilos at a price of $0.55 each to customers.What is the operating profit of both divisions together?

A)$15 000
B)$10 000
C)$20 000
D)$25 000

Question 60

Answer the following questions using the information below:
NSW Farmers Coop has two divisions: Distribution and Production.The company's primary product is fertiliser.Each division's costs are provided below:
$$\begin{array} { l r l } \text { Production: } & \text { Variable costs per kilo } & \$ 0.05 \\& \text { Fixed costs per kilo } & \$ 0.25 \\\text { Distribution: } & \text { Variable costs per kilo } & \$ 0.03 \\& \text { Fixed costs per kilo } & \$ 0.02\end{array}$$ The Distribution Division has been operating at a capacity of 4 000 000 kilos a week and usually purchases 2 000 000 kilos from the Production Division and 2 000 000 kilos from other suppliers at $0.45 per kilo.

-What is the transfer price per kilo from the Production Division to the Distribution Division,assuming the method used to place a value on each kilo of fertiliser is 160% of variable costs?

A)$0.11
B)$0.40
C)$0.08
D)$0.05

Question 61

Answer the following questions using the information below:
The Betashoe Company manufactures shoes.It has two divisions: the Sole Division and the Assembly Division.The Sole Division manufactures soles for the Assembly Division,which completes the manufacturing of the shoes and sells the completed product to retailers.The Sole Division 'sells' pairs of soles to the Assembly Division.The market price for the Assembly Division to purchase a pair of soles is $20.(Ignore changes in inventory. )The fixed costs for the Sole Division are assumed to be the same over the range of 40 000-100 000 units.The fixed costs for the Assembly Division are assumed to be $7 per pair of shoes at 100 000 units.
Costs per pair of soles are:
$\begin{array}{ll}\text { Direct materials } & \$ 4 \\\text { Direct labour } & \$ 3 \\\text { Variable overhead } & \$ 2 \\\text { Division fixed costs } & \$ 1\end{array}$

Assembly's costs per completed pair of shoes are:
$\begin{array} { l l } \text { Direct materials } & \$ 6 \\ \text { Direct labour } & \$ 2 \\ \text { Variable overhead } & \$ 1 \\ \text { Division fixed costs } & \$ 7 \end{array}$

-Assume the transfer price for a pair of soles is 180% of total costs of the Sole Division and 40 000 pairs of soles are produced and transferred to the Assembly Division.The Sole Division's operating profit is:

A)$320 000
B)$360 000
C)$440 000
D)$400 000

Question 62

Answer the following questions using the information below:
Calculate the Division operating profit for the Cool Air Company which manufactures only one type of air conditioner and has two divisions: the Compressor Division and the Assembly Division.The Compressor Division manufactures compressors for the Assembly Division,which completes the air conditioner and sells it to retailers.The Compressor Division 'sells' compressors to the Assembly Division.The market price for the Assembly Division to purchase a compressor is $77.(Ignore changes in inventory. )The fixed costs for the Compressor Division are assumed to be the same over the range of 5000-10 000 units.The fixed costs for the Assembly Division are assumed to be $15.00 per unit at 10 000 units.
Compressor's costs per compressor are:
$\begin{array} { l r } \text { Direct materials } & \$ 34.00 \\ \text { Direct labour } & \$ 14.50 \\ \text { Variable overhead } & \$ 6.00 \\ \text { Division fixed costs } & \$ 15.00 \end{array}$

Assembly's costs per completed air conditioner are:
$\begin{array} { l r } \text { Direct materials } & \$ 300.00 \\ \text { Direct labour } & \$ 125.00 \\ \text { Variable overhead } & \$ 40.00 \\ \text { Division fixed costs } & \$ 15.00 \end{array}$

-What is the market-based transfer price per compressor from the Compressor Division to the Assembly Division?

A)$54.50
B)$34.00
C)$69.50
D)$77

Question 63

Answer the following questions using the information below:
Division A sells soybean paste internally to Division B,which in turn,produces soybean burgers that sell for $5 per kilo.Division A incurs costs of $0.75 per kilo while Division B incurs additional costs of $2.50 per kilo.
What is Division A's operating profit per kilo,assuming the transfer price of the soybean paste is set at $1.25 per kilo?

A)$0.500
B)$1.250
C)$1.625
D)$0.875

Question 64

Answer the following questions using the information below:
Calculate the Division operating profit for the Don's Cricket Bat Company which manufactures cricket bats.It has two divisions: the Bat Blade Division and the Assembly Division.The Bat Blade Division manufactures blades for the Assembly Division,which splices handles to the blades and sells the completed bats to retailers.The Bat Blade Division 'sells' blades to the Assembly Division.The market price for the Assembly Division to purchase a blade is $40.(Ignore changes in inventory. )The fixed costs for the Bat Blade Division are assumed to be the same over the range of 20 000-50 000 units.The fixed costs for the Assembly Division are assumed to be $14 per bat at 50 000 units.
Costs per blade are:
$\begin{array}{ll}\text { Direct materials } & \$ 8 \\\text { Direct labour } & \$ 6 \\\text { Variable overhead } & \$ 4 \\\text { Division fixed costs } & \$ 2\end{array}$

Assembly's costs per completed bat are:
$\begin{array} { l r } \text { Direct materials } & \$ 12 \\ \text { Direct labour } & \$ 4 \\ \text { Variable overhead } & \$ 1 \\ \text { Division fixed costs } & \$ 14 \end{array}$

-The market-based transfer price per blade from the Bat Blade Division to the Assembly Division is:

A)$20
B)$32
C)$40
D)$52

Question 65

When an industry has excess capacity,market prices may drop well below their historical average.If this drop is temporary,it is called:

A)dropped prices.
B)distress prices.
C)substitute prices.
D)low-average prices.

Question 66

Answer the following questions using the information below:
Calculate the Division operating profit for the Cool Air Company which manufactures only one type of air conditioner and has two divisions: the Compressor Division and the Assembly Division.The Compressor Division manufactures compressors for the Assembly Division,which completes the air conditioner and sells it to retailers.The Compressor Division 'sells' compressors to the Assembly Division.The market price for the Assembly Division to purchase a compressor is $77.(Ignore changes in inventory. )The fixed costs for the Compressor Division are assumed to be the same over the range of 5000-10 000 units.The fixed costs for the Assembly Division are assumed to be $15.00 per unit at 10 000 units.
Compressor's costs per compressor are:
$\begin{array} { l r } \text { Direct materials } & \$ 34.00 \\ \text { Direct labour } & \$ 14.50 \\ \text { Variable overhead } & \$ 6.00 \\ \text { Division fixed costs } & \$ 15.00 \end{array}$

Assembly's costs per completed air conditioner are:
$\begin{array} { l r } \text { Direct materials } & \$ 300.00 \\ \text { Direct labour } & \$ 125.00 \\ \text { Variable overhead } & \$ 40.00 \\ \text { Division fixed costs } & \$ 15.00 \end{array}$

-If the Assembly Division sells 1000 air conditioners at a price of $750.00 per air conditioner to customers,what is the operating profit of both divisions together?

A)$200 500
B)$194 000
C)$165 750
D)$207 000

Question 67

Answer the following questions using the information below:
The Betashoe Company manufactures shoes.It has two divisions: the Sole Division and the Assembly Division.The Sole Division manufactures soles for the Assembly Division,which completes the manufacturing of the shoes and sells the completed product to retailers.The Sole Division 'sells' pairs of soles to the Assembly Division.The market price for the Assembly Division to purchase a pair of soles is $20.(Ignore changes in inventory. )The fixed costs for the Sole Division are assumed to be the same over the range of 40 000-100 000 units.The fixed costs for the Assembly Division are assumed to be $7 per pair of shoes at 100 000 units.
Costs per pair of soles are:
$\begin{array}{ll}\text { Direct materials } & \$ 4 \\\text { Direct labour } & \$ 3 \\\text { Variable overhead } & \$ 2 \\\text { Division fixed costs } & \$ 1\end{array}$

Assembly's costs per completed pair of shoes are:
$\begin{array} { l l } \text { Direct materials } & \$ 6 \\ \text { Direct labour } & \$ 2 \\ \text { Variable overhead } & \$ 1 \\ \text { Division fixed costs } & \$ 7 \end{array}$

-If the Assembly Division sells 100 000 pairs of shoes at a price of $60 a pair to customers,what is the operating profit of both divisions together?

A)$2 600 000
B)$3 400 000
C)$3 000 000
D)$4 400 000

Question 68

Answer the following questions using the information below:
Calculate the Division operating profit for the Don's Cricket Bat Company which manufactures cricket bats.It has two divisions: the Bat Blade Division and the Assembly Division.The Bat Blade Division manufactures blades for the Assembly Division,which splices handles to the blades and sells the completed bats to retailers.The Bat Blade Division 'sells' blades to the Assembly Division.The market price for the Assembly Division to purchase a blade is $40.(Ignore changes in inventory. )The fixed costs for the Bat Blade Division are assumed to be the same over the range of 20 000-50 000 units.The fixed costs for the Assembly Division are assumed to be $14 per bat at 50 000 units.
Costs per blade are:
$\begin{array}{ll}\text { Direct materials } & \$ 8 \\\text { Direct labour } & \$ 6 \\\text { Variable overhead } & \$ 4 \\\text { Division fixed costs } & \$ 2\end{array}$

Assembly's costs per completed bat are:
$\begin{array} { l r } \text { Direct materials } & \$ 12 \\ \text { Direct labour } & \$ 4 \\ \text { Variable overhead } & \$ 1 \\ \text { Division fixed costs } & \$ 14 \end{array}$

-Actual costs are the only costs used in cost-based transfer prices.

Question 69

Answer the following questions using the information below:
The Betashoe Company manufactures shoes.It has two divisions: the Sole Division and the Assembly Division.The Sole Division manufactures soles for the Assembly Division,which completes the manufacturing of the shoes and sells the completed product to retailers.The Sole Division 'sells' pairs of soles to the Assembly Division.The market price for the Assembly Division to purchase a pair of soles is $20.(Ignore changes in inventory. )The fixed costs for the Sole Division are assumed to be the same over the range of 40 000-100 000 units.The fixed costs for the Assembly Division are assumed to be $7 per pair of shoes at 100 000 units.
Costs per pair of soles are:
$\begin{array}{ll}\text { Direct materials } & \$ 4 \\\text { Direct labour } & \$ 3 \\\text { Variable overhead } & \$ 2 \\\text { Division fixed costs } & \$ 1\end{array}$

Assembly's costs per completed pair of shoes are:
$\begin{array} { l l } \text { Direct materials } & \$ 6 \\ \text { Direct labour } & \$ 2 \\ \text { Variable overhead } & \$ 1 \\ \text { Division fixed costs } & \$ 7 \end{array}$

-Calculate and compare the difference in overall corporate net profit between Scenario A and Scenario B if the Assembly Division sells 100 000 pairs of shoes for $60 per pair to customers.
Scenario A: Negotiated transfer price of $15 per pair of soles
Scenario B: Market-based transfer price

A)$100 000 of net profit using Scenario A
B)$500 000 more net profit under Scenario A
C)$500 000 of net profit using Scenario B
D)None of these answers are correct.

Question 70

Answer the following questions using the information below:
Division A sells soybean paste internally to Division B,which in turn,produces soybean burgers that sell for $5 per kilo.Division A incurs costs of $0.75 per kilo while Division B incurs additional costs of $2.50 per kilo.
Which formula correctly reflects the company's operating profit per kilo?

A)$5.00 - ($1.25 + $2.50)= $1.25
B)$5.00 - ($0.25 + $1.25 + $3.50)= 0
C)$5.00 - ($0.75 + $3.75)= $0.50
D)$5.00 - ($0.75 + $2.50)= $1.75

Question 71

Answer the following questions using the information below:
Calculate the Division operating profit for the Don's Cricket Bat Company which manufactures cricket bats.It has two divisions: the Bat Blade Division and the Assembly Division.The Bat Blade Division manufactures blades for the Assembly Division,which splices handles to the blades and sells the completed bats to retailers.The Bat Blade Division 'sells' blades to the Assembly Division.The market price for the Assembly Division to purchase a blade is $40.(Ignore changes in inventory. )The fixed costs for the Bat Blade Division are assumed to be the same over the range of 20 000-50 000 units.The fixed costs for the Assembly Division are assumed to be $14 per bat at 50 000 units.
Costs per blade are:
$\begin{array}{ll}\text { Direct materials } & \$ 8 \\\text { Direct labour } & \$ 6 \\\text { Variable overhead } & \$ 4 \\\text { Division fixed costs } & \$ 2\end{array}$

Assembly's costs per completed bat are:
$\begin{array} { l r } \text { Direct materials } & \$ 12 \\ \text { Direct labour } & \$ 4 \\ \text { Variable overhead } & \$ 1 \\ \text { Division fixed costs } & \$ 14 \end{array}$

-Which on the following is a benefit of using a market-based transfer price?

A)Profits of the division receiving the products are sacrificed for the overall good of the corporation.
B)Economic viability and profitability of each division can be evaluated individually.
C)Profits of the transferring division are sacrificed for the overall good of the corporation.
D)None of these answers are correct.

Question 72

Answer the following questions using the information below:
Calculate the Division operating profit for the Don's Cricket Bat Company which manufactures cricket bats.It has two divisions: the Bat Blade Division and the Assembly Division.The Bat Blade Division manufactures blades for the Assembly Division,which splices handles to the blades and sells the completed bats to retailers.The Bat Blade Division 'sells' blades to the Assembly Division.The market price for the Assembly Division to purchase a blade is $40.(Ignore changes in inventory. )The fixed costs for the Bat Blade Division are assumed to be the same over the range of 20 000-50 000 units.The fixed costs for the Assembly Division are assumed to be $14 per bat at 50 000 units.
Costs per blade are:
$\begin{array}{ll}\text { Direct materials } & \$ 8 \\\text { Direct labour } & \$ 6 \\\text { Variable overhead } & \$ 4 \\\text { Division fixed costs } & \$ 2\end{array}$

Assembly's costs per completed bat are:
$\begin{array} { l r } \text { Direct materials } & \$ 12 \\ \text { Direct labour } & \$ 4 \\ \text { Variable overhead } & \$ 1 \\ \text { Division fixed costs } & \$ 14 \end{array}$

-What is the transfer price per blade from the Bat Blade Division to the Assembly Division if the method used to place a value on each blade is 180% of variable costs?

A)$57.60
B)$25.20
C)$32.40
D)$28.80

Question 73

Answer the following questions using the information below:
Calculate the Division operating profit for the Don's Cricket Bat Company which manufactures cricket bats.It has two divisions: the Bat Blade Division and the Assembly Division.The Bat Blade Division manufactures blades for the Assembly Division,which splices handles to the blades and sells the completed bats to retailers.The Bat Blade Division 'sells' blades to the Assembly Division.The market price for the Assembly Division to purchase a blade is $40.(Ignore changes in inventory. )The fixed costs for the Bat Blade Division are assumed to be the same over the range of 20 000-50 000 units.The fixed costs for the Assembly Division are assumed to be $14 per bat at 50 000 units.
Costs per blade are:
$\begin{array}{ll}\text { Direct materials } & \$ 8 \\\text { Direct labour } & \$ 6 \\\text { Variable overhead } & \$ 4 \\\text { Division fixed costs } & \$ 2\end{array}$

Assembly's costs per completed bat are:
$\begin{array} { l r } \text { Direct materials } & \$ 12 \\ \text { Direct labour } & \$ 4 \\ \text { Variable overhead } & \$ 1 \\ \text { Division fixed costs } & \$ 14 \end{array}$

-Assume the transfer price for a blade is 180% of total costs of the Bat Blade Division and 40 000 blades are produced and transferred to the Assembly Division.The Bat Blade Division's operating profit is:

A)$640 000
B)$880 000
C)$800 000
D)$720 000

Question 74

Answer the following questions using the information below:
Calculate the Division operating profit for the Cool Air Company which manufactures only one type of air conditioner and has two divisions: the Compressor Division and the Assembly Division.The Compressor Division manufactures compressors for the Assembly Division,which completes the air conditioner and sells it to retailers.The Compressor Division 'sells' compressors to the Assembly Division.The market price for the Assembly Division to purchase a compressor is $77.(Ignore changes in inventory. )The fixed costs for the Compressor Division are assumed to be the same over the range of 5000-10 000 units.The fixed costs for the Assembly Division are assumed to be $15.00 per unit at 10 000 units.
Compressor's costs per compressor are:
$\begin{array} { l r } \text { Direct materials } & \$ 34.00 \\ \text { Direct labour } & \$ 14.50 \\ \text { Variable overhead } & \$ 6.00 \\ \text { Division fixed costs } & \$ 15.00 \end{array}$

Assembly's costs per completed air conditioner are:
$\begin{array} { l r } \text { Direct materials } & \$ 300.00 \\ \text { Direct labour } & \$ 125.00 \\ \text { Variable overhead } & \$ 40.00 \\ \text { Division fixed costs } & \$ 15.00 \end{array}$

-What is the transfer price per compressor from the Compressor Division to the Assembly Division if the method used to place a value on each compressor is 150% of variable costs?

A)$81.75
B)$72.75
C)$9.00
D)$77.00

Question 75

Answer the following questions using the information below:
Calculate the Division operating profit for the Cool Air Company which manufactures only one type of air conditioner and has two divisions: the Compressor Division and the Assembly Division.The Compressor Division manufactures compressors for the Assembly Division,which completes the air conditioner and sells it to retailers.The Compressor Division 'sells' compressors to the Assembly Division.The market price for the Assembly Division to purchase a compressor is $77.(Ignore changes in inventory. )The fixed costs for the Compressor Division are assumed to be the same over the range of 5000-10 000 units.The fixed costs for the Assembly Division are assumed to be $15.00 per unit at 10 000 units.
Compressor's costs per compressor are:
$\begin{array} { l r } \text { Direct materials } & \$ 34.00 \\ \text { Direct labour } & \$ 14.50 \\ \text { Variable overhead } & \$ 6.00 \\ \text { Division fixed costs } & \$ 15.00 \end{array}$

Assembly's costs per completed air conditioner are:
$\begin{array} { l r } \text { Direct materials } & \$ 300.00 \\ \text { Direct labour } & \$ 125.00 \\ \text { Variable overhead } & \$ 40.00 \\ \text { Division fixed costs } & \$ 15.00 \end{array}$

-What is the transfer price per compressor from the Compressor Division to the Assembly Division if the transfer price per compressor is 110% of full costs?

A)$80.00
B)$84.70
C)$76.45
D)None of these options are correct.

Question 76

Answer the following questions using the information below:
Calculate the Division operating profit for the Don's Cricket Bat Company which manufactures cricket bats.It has two divisions: the Bat Blade Division and the Assembly Division.The Bat Blade Division manufactures blades for the Assembly Division,which splices handles to the blades and sells the completed bats to retailers.The Bat Blade Division 'sells' blades to the Assembly Division.The market price for the Assembly Division to purchase a blade is $40.(Ignore changes in inventory. )The fixed costs for the Bat Blade Division are assumed to be the same over the range of 20 000-50 000 units.The fixed costs for the Assembly Division are assumed to be $14 per bat at 50 000 units.
Costs per blade are:
$\begin{array}{ll}\text { Direct materials } & \$ 8 \\\text { Direct labour } & \$ 6 \\\text { Variable overhead } & \$ 4 \\\text { Division fixed costs } & \$ 2\end{array}$

Assembly's costs per completed bat are:
$\begin{array} { l r } \text { Direct materials } & \$ 12 \\ \text { Direct labour } & \$ 4 \\ \text { Variable overhead } & \$ 1 \\ \text { Division fixed costs } & \$ 14 \end{array}$

-What is the transfer price per blade from the Bat Blade Division to the Assembly Division per blade if the transfer price per blade is 125% of full costs?

A)$26
B)$25
C)$20
D)$30

Question 77

Answer the following questions using the information below:
Calculate the Division operating profit for the Don's Cricket Bat Company which manufactures cricket bats.It has two divisions: the Bat Blade Division and the Assembly Division.The Bat Blade Division manufactures blades for the Assembly Division,which splices handles to the blades and sells the completed bats to retailers.The Bat Blade Division 'sells' blades to the Assembly Division.The market price for the Assembly Division to purchase a blade is $40.(Ignore changes in inventory. )The fixed costs for the Bat Blade Division are assumed to be the same over the range of 20 000-50 000 units.The fixed costs for the Assembly Division are assumed to be $14 per bat at 50 000 units.
Costs per blade are:
$\begin{array}{ll}\text { Direct materials } & \$ 8 \\\text { Direct labour } & \$ 6 \\\text { Variable overhead } & \$ 4 \\\text { Division fixed costs } & \$ 2\end{array}$

Assembly's costs per completed bat are:
$\begin{array} { l r } \text { Direct materials } & \$ 12 \\ \text { Direct labour } & \$ 4 \\ \text { Variable overhead } & \$ 1 \\ \text { Division fixed costs } & \$ 14 \end{array}$

-What is the operating profit of both divisions together if the Assembly Division sells 50 000 blades at a price of $120 a pair to customers?

A)$2 600 000
B)$3 400 000
C)$3 000 000
D)$4 400 000

Question 78

Answer the following questions using the information below:
Calculate the Division operating profit for the Don's Cricket Bat Company which manufactures cricket bats.It has two divisions: the Bat Blade Division and the Assembly Division.The Bat Blade Division manufactures blades for the Assembly Division,which splices handles to the blades and sells the completed bats to retailers.The Bat Blade Division 'sells' blades to the Assembly Division.The market price for the Assembly Division to purchase a blade is $40.(Ignore changes in inventory. )The fixed costs for the Bat Blade Division are assumed to be the same over the range of 20 000-50 000 units.The fixed costs for the Assembly Division are assumed to be $14 per bat at 50 000 units.
Costs per blade are:
$\begin{array}{ll}\text { Direct materials } & \$ 8 \\\text { Direct labour } & \$ 6 \\\text { Variable overhead } & \$ 4 \\\text { Division fixed costs } & \$ 2\end{array}$

Assembly's costs per completed bat are:
$\begin{array} { l r } \text { Direct materials } & \$ 12 \\ \text { Direct labour } & \$ 4 \\ \text { Variable overhead } & \$ 1 \\ \text { Division fixed costs } & \$ 14 \end{array}$

-Calculate and compare the difference in overall corporate net profit between Scenario A and Scenario B if the Assembly Division sells 50 000 blades for $120 each to customers.
Scenario A: Negotiated transfer price of $15 per blade
Scenario B: Market-based transfer price

A)$500 000 more net profit under Scenario A
B)$100 000 of net profit using Scenario A
C)$500 000 of net profit using Scenario B
D)None of these answers are correct.

Question 79

Answer the following questions using the information below:
The Betashoe Company manufactures shoes.It has two divisions: the Sole Division and the Assembly Division.The Sole Division manufactures soles for the Assembly Division,which completes the manufacturing of the shoes and sells the completed product to retailers.The Sole Division 'sells' pairs of soles to the Assembly Division.The market price for the Assembly Division to purchase a pair of soles is $20.(Ignore changes in inventory. )The fixed costs for the Sole Division are assumed to be the same over the range of 40 000-100 000 units.The fixed costs for the Assembly Division are assumed to be $7 per pair of shoes at 100 000 units.
Costs per pair of soles are:
$\begin{array}{ll}\text { Direct materials } & \$ 4 \\\text { Direct labour } & \$ 3 \\\text { Variable overhead } & \$ 2 \\\text { Division fixed costs } & \$ 1\end{array}$

Assembly's costs per completed pair of shoes are:
$\begin{array} { l l } \text { Direct materials } & \$ 6 \\ \text { Direct labour } & \$ 2 \\ \text { Variable overhead } & \$ 1 \\ \text { Division fixed costs } & \$ 7 \end{array}$

-What is the transfer price per pair of shoes from the Sole Division to the Assembly Division per pair of soles if the transfer price per pair of soles is 125% of full costs?

A)$15
B)$12.50
C)$13
D)$10

Question 80

Answer the following questions using the information below:
Calculate the Division operating profit for the Cool Air Company which manufactures only one type of air conditioner and has two divisions: the Compressor Division and the Assembly Division.The Compressor Division manufactures compressors for the Assembly Division,which completes the air conditioner and sells it to retailers.The Compressor Division 'sells' compressors to the Assembly Division.The market price for the Assembly Division to purchase a compressor is $77.(Ignore changes in inventory. )The fixed costs for the Compressor Division are assumed to be the same over the range of 5000-10 000 units.The fixed costs for the Assembly Division are assumed to be $15.00 per unit at 10 000 units.
Compressor's costs per compressor are:
$\begin{array} { l r } \text { Direct materials } & \$ 34.00 \\ \text { Direct labour } & \$ 14.50 \\ \text { Variable overhead } & \$ 6.00 \\ \text { Division fixed costs } & \$ 15.00 \end{array}$

Assembly's costs per completed air conditioner are:
$\begin{array} { l r } \text { Direct materials } & \$ 300.00 \\ \text { Direct labour } & \$ 125.00 \\ \text { Variable overhead } & \$ 40.00 \\ \text { Division fixed costs } & \$ 15.00 \end{array}$

-Assume the transfer price for a compressor is 150% of total costs of the Compressor Division and 1000 of the compressors are produced and transferred to the Assembly Division.The Compressor Division's operating profit is:

A)$36 500
B)$31 750
C)$34 750
D)$32 750