Question 1

A general rule for transfer pricing is that the transfer price should equal the sum of outlay cost and opportunity cost.

Accepted Answer

A) True 
 B)False

Question 2

The following information is available for Patterson Company:   Invested capital is defined as total stockholders' equity.What is invested capital?

Accepted Answer

A) $350,000 
B) $550,000 
C) $600,000 
D) $650,000 
A) $350,000 
B) $550,000 
C) $600,000 
D) $650,000

Question 3

Which of the following is NOT a goal of transfer pricing systems?

Accepted Answer

A) preserve segment autonomy 
B) eliminate segment autonomy 
C) increase performance of company as a whole 
D) guide managers to make best possible decisions regarding whether to buy or sell products inside or outside the organization 
A) preserve segment autonomy 
B) eliminate segment autonomy 
C) increase performance of company as a whole 
D) guide managers to make best possible decisions regarding whether to buy or sell products inside or outside the organization

Question 4

The West and East Divisions are part of the same company.Currently the East Division buys a part from West Division for $384 per unit.The West Division wants to increase the price of the part it sells to East Division by $96 to $480.The manager of the East Division has stated that he cannot pay that much insofar as the division's profit goes below zero.The manager of the East Division can buy the part from an outside supplier for $448 per unit.The cost data pertaining to the part is supplied by the West Division:   If West Division does not produce the parts for the East Division,it will be able to avoid one-third of the fixed manufacturing overhead costs.The West Division has excess capacity but no alternative uses for the facilities.What is the minimum transfer price per unit that West Division should charge East Division?

Accepted Answer

A) $376 
B) $390 
C) $448 
D) $480 
A) $376 
B) $390 
C) $448 
D) $480

Question 5

The proponents of gross book value maintain that it facilitates comparisons between years and between plants or divisions.

Accepted Answer

A) True 
 B)False

Question 6

The West and East Divisions are part of the same company.Currently the East Division buys a part from West Division for $384 per unit.The West Division wants to increase the price of the part it sells to East Division by $96 to $480.The manager of the East Division has stated that he cannot pay that much insofar as the division's profit goes below zero.The manager of the East Division can buy the part from an outside supplier for $448 per unit.The cost data pertaining to the part is supplied by the West Division:   If West Division does not produce the parts for the East Division,it will be able to avoid one-third of the fixed manufacturing overhead costs.The West Division has excess capacity but no alternative uses for the facilities.From the standpoint of the company as a whole,should the East Division buy the part from the West Division or the outside supplier?

Accepted Answer

A) East Division should buy the part from the West Division because the Company's profit will be $14.00 per unit larger. 
B) East Division should buy the part from the West Division because the company's profit will be $32.00 per unit larger. 
C) East Division should buy the part from the West Division because the company's profit will be $58.00 per unit larger. 
D) East Division should buy from an outside supplier. 
A) East Division should buy the part from the West Division because the Company's profit will be $14.00 per unit larger. 
B) East Division should buy the part from the West Division because the company's profit will be $32.00 per unit larger. 
C) East Division should buy the part from the West Division because the company's profit will be $58.00 per unit larger. 
D) East Division should buy from an outside supplier.

Question 7

In measuring the performance of a division manager,stockholders' equity should not be used as the amount of invested capital.

Accepted Answer

A) True 
 B)False

Question 8

Anne Company reports the following information:   What is the economic profit for Anne Company?

Accepted Answer

A) $30,000 
B) $50,000 
C) $250,000 
D) $450,000 
A) $30,000 
B) $50,000 
C) $250,000 
D) $450,000

Question 9

The following information pertains to Jupiter Company:   Invested capital is defined as total assets.What is the capital turnover?

Accepted Answer

A) 0.40 
B) 0.63 
C) 1.79 
D) 2.00 
A) 0.40 
B) 0.63 
C) 1.79 
D) 2.00

Question 10

A division of Saskowski Company is located in Bulgaria.The country places restrictions on the amount of funds that may be paid as dividends to foreign owners.If Saskowski Company wants to maximize the amount of cash received from the foreign division,Saskowski Company should set a ________.

Accepted Answer

A) high transfer price for goods transferred out of Bulgaria 
B) high transfer price for goods transferred into Bulgaria 
C) low transfer price for goods transferred out of Bulgaria 
D) low transfer price for goods transferred into Bulgaria 
A) high transfer price for goods transferred out of Bulgaria 
B) high transfer price for goods transferred into Bulgaria 
C) low transfer price for goods transferred out of Bulgaria 
D) low transfer price for goods transferred into Bulgaria

Question 11

Lou Company's records reveal the following:     Variable costs:
  The variable costs of Division Y will be incurred whether it buys from Division X or from an outside supplier.Division X wants to transfer the components to Division Y for $34 each.Division Y can buy the component for $32 per unit from an outside supplier.Division X has no excess capacity.The manager of Division Y should ________.

Accepted Answer

A) buy the components from the outside supplier for $32 each 
B) buy the components from Division X at $34 each 
C) buy the components from an outside supplier for $33 each 
D) none of the above 
A) buy the components from the outside supplier for $32 each 
B) buy the components from Division X at $34 each 
C) buy the components from an outside supplier for $33 each 
D) none of the above

Question 12

Local managers in decentralized organizations tend to duplicate services that may be less expensive if centralized.

Accepted Answer

A) True 
 B)False

Question 13

When measuring invested capital,managers in practice predominantly use ________.

Accepted Answer

A) Net book value at current cost 
B) Net book value at historical cost 
C) Gross book value at historical cost 
D) Gross book value at future cost 
A) Net book value at current cost 
B) Net book value at historical cost 
C) Gross book value at historical cost 
D) Gross book value at future cost

Question 14

Decentralization is more popular in nonprofit organizations than profit-seeking organizations.

Accepted Answer

A) True 
 B)False

Question 15

The following information is available for Rory Company:   Invested capital is defined as total assets.Before-tax operating profit is $175,000.After-tax operating profit is $125,000.The after-tax cost of capital is 10%.What is economic profit?

Accepted Answer

A) $95,000 
B) $125,000 
C) $145,000 
D) $175,000 
A) $95,000 
B) $125,000 
C) $145,000 
D) $175,000

Question 16

U.S.multinational companies must follow the Internal Revenue Code when setting transfer prices.

Accepted Answer

A) True 
 B)False

Question 17

Economic profit is ________ less ________.

Accepted Answer

A) net operating profit; capital charge 
B) residual income; capital charge 
C) income before interest expense and taxes; capital charge 
D) income before interest expense but after taxes; capital charge 
A) net operating profit; capital charge 
B) residual income; capital charge 
C) income before interest expense and taxes; capital charge 
D) income before interest expense but after taxes; capital charge

Question 18

Decentralization may increase a firm's costs because ________.

Accepted Answer

A) lower level managers duplicate services that may be less expensive if centralized 
B) information costs rise as top management needs additional reports to learn about decentralized units 
C) lower level managers may make decisions that are not in the best interests of the firm as a whole 
D) all of the above 
A) lower level managers duplicate services that may be less expensive if centralized 
B) information costs rise as top management needs additional reports to learn about decentralized units 
C) lower level managers may make decisions that are not in the best interests of the firm as a whole 
D) all of the above

Question 19

The decentralization of organizations has several disadvantages that include ________.

Accepted Answer

A) lower level managers can make faster decisions than higher level managers. 
B) innovative ideas are less likely to be shared in decentralized organizations. 
C) local managers are given the opportunity to develop decision making skills so they can move up in the organization. 
D) higher level managers are given more time to pursue strategy issues. 
A) lower level managers can make faster decisions than higher level managers. 
B) innovative ideas are less likely to be shared in decentralized organizations. 
C) local managers are given the opportunity to develop decision making skills so they can move up in the organization. 
D) higher level managers are given more time to pursue strategy issues.

Question 20

In all return on investment calculations,invested capital should be measured as an average for the period under review.

Accepted Answer

A) True 
 B)False

A general rule for transfer pricing is that the transfer price should equal the sum of outlay cost and opportunity cost.

The following information is available for Patterson Company: Invested capital is defined as total stockholders' equity.What is invested capital?

Which of the following is NOT a goal of transfer pricing systems?

The proponents of gross book value maintain that it facilitates comparisons between years and between plants or divisions.

In measuring the performance of a division manager,stockholders' equity should not be used as the amount of invested capital.

Anne Company reports the following information: What is the economic profit for Anne Company?

The following information pertains to Jupiter Company: Invested capital is defined as total assets.What is the capital turnover?

A division of Saskowski Company is located in Bulgaria.The country places restrictions on the amount of funds that may be paid as dividends to foreign owners.If Saskowski Company wants to maximize the amount of cash received from the foreign division,Saskowski Company should set a ________.

Local managers in decentralized organizations tend to duplicate services that may be less expensive if centralized.

When measuring invested capital,managers in practice predominantly use ________.

Decentralization is more popular in nonprofit organizations than profit-seeking organizations.

The following information is available for Rory Company: Invested capital is defined as total assets.Before-tax operating profit is $175,000.After-tax operating profit is $125,000.The after-tax cost of capital is 10%.What is economic profit?

U.S.multinational companies must follow the Internal Revenue Code when setting transfer prices.

Economic profit is less .

Decentralization may increase a firm's costs because ________.

The decentralization of organizations has several disadvantages that include ________.

In all return on investment calculations,invested capital should be measured as an average for the period under review.

Managerial Accounting, the Business Organization

Introduction to Cost Behavior and Cost-Volume Relationships

Measurement of Cost Behavior

Cost Management Systems and Activity-Based Costing

Relevant Information for Decision Making With a Focus

Relevant Information for Decision Making With a Focus

Introduction to Budgets and Preparing the Master Budget

Flexible Budgets and Variance Analysis

Management Control Systems and Responsibility Accounting

Capital Budgeting

Cost Allocation

Accounting for Overhead Costs

Job-Order Costing and Process-Costing Systems

Basic Accounting: Concepts, techniques, and Conventions

Understanding Corporate Annual Reports: Basic Financial Statements

Understanding and Analyzing Consolidated Financial Statements

Filters

Exam 10: Management Control in Decentralized Organizations

A general rule for transfer pricing is that the transfer price should equal the sum of outlay cost and opportunity cost.

The following information is available for Patterson Company: Invested capital is defined as total stockholders' equity.What is invested capital?

Which of the following is NOT a goal of transfer pricing systems?

The proponents of gross book value maintain that it facilitates comparisons between years and between plants or divisions.

In measuring the performance of a division manager,stockholders' equity should not be used as the amount of invested capital.

Anne Company reports the following information: What is the economic profit for Anne Company?

The following information pertains to Jupiter Company: Invested capital is defined as total assets.What is the capital turnover?

A division of Saskowski Company is located in Bulgaria.The country places restrictions on the amount of funds that may be paid as dividends to foreign owners.If Saskowski Company wants to maximize the amount of cash received from the foreign division,Saskowski Company should set a ________.

Local managers in decentralized organizations tend to duplicate services that may be less expensive if centralized.

When measuring invested capital,managers in practice predominantly use ________.

Decentralization is more popular in nonprofit organizations than profit-seeking organizations.

The following information is available for Rory Company: Invested capital is defined as total assets.Before-tax operating profit is $175,000.After-tax operating profit is $125,000.The after-tax cost of capital is 10%.What is economic profit?

U.S.multinational companies must follow the Internal Revenue Code when setting transfer prices.

Economic profit is ________ less ________.

Decentralization may increase a firm's costs because ________.

The decentralization of organizations has several disadvantages that include ________.

In all return on investment calculations,invested capital should be measured as an average for the period under review.

Managerial Accounting, the Business Organization

Introduction to Cost Behavior and Cost-Volume Relationships

Measurement of Cost Behavior

Cost Management Systems and Activity-Based Costing

Relevant Information for Decision Making With a Focus

Relevant Information for Decision Making With a Focus

Introduction to Budgets and Preparing the Master Budget

Flexible Budgets and Variance Analysis

Management Control Systems and Responsibility Accounting

Capital Budgeting

Cost Allocation

Accounting for Overhead Costs

Job-Order Costing and Process-Costing Systems

Basic Accounting: Concepts, techniques, and Conventions

Understanding Corporate Annual Reports: Basic Financial Statements

Understanding and Analyzing Consolidated Financial Statements

Filters

Economic profit is less .