Question 1

Which of the following is(are)the transfer price that would leave the buying division no worse off if an input is purchased from an internal division.

Accepted Answer

A) The negotiated transfer price. 
B) The minimum transfer price. 
C) The maximum transfer price. 
D) Both a.and c. 
A) The negotiated transfer price. 
B) The minimum transfer price. 
C) The maximum transfer price. 
D) Both a.and c.

Question 2

Framing Division
The Framing Division had the following data:
 
Refer to the Framing Division.What is the investment turnover ratio for Year 2010?

Accepted Answer

A) 1.0 
B) 1.5 
C) 1.6 
D) 2.0 
A) 1.0 
B) 1.5 
C) 1.6 
D) 2.0

Question 3

What has spawned a major political issue concerning the estimated cost to the United States Treasury of as much as $9 billion to $13 billion per year in lost taxes that could presumably be collected if transfer prices were calculated according to U.S.tax laws?

Accepted Answer

A) Tax avoidance by foreign companies using inflated transfer prices to reduce the profit of U.S.subsidiaries. 
B) Tax avoidance by domestic,United States,companies using inflated transfer prices to reduce the foreign profit of U.S.subsidiaries. 
C) Tax avoidance by foreign companies using deflated transfer prices to reduce the profit of U.S.subsidiaries. 
D) Tax avoidance by domestic,United States,companies using deflated transfer prices to reduce the profit of foreign subsidiaries. 
A) Tax avoidance by foreign companies using inflated transfer prices to reduce the profit of U.S.subsidiaries. 
B) Tax avoidance by domestic,United States,companies using inflated transfer prices to reduce the foreign profit of U.S.subsidiaries. 
C) Tax avoidance by foreign companies using deflated transfer prices to reduce the profit of U.S.subsidiaries. 
D) Tax avoidance by domestic,United States,companies using deflated transfer prices to reduce the profit of foreign subsidiaries.

Question 4

Framing Division
The Framing Division had the following data:
 
Refer to the Framing Division.What is the return on investment for Year 2008?

Accepted Answer

A) 10%. 
B) 16%. 
C) 20%. 
D) 24%. 
A) 10%. 
B) 16%. 
C) 20%. 
D) 24%.

Question 5

The following information relates to the operating performance of three divisions of Santos,Inc.for last year.
   
Required:
a.Compute the rate of return on investment (ROI)of each division for last year.
b.Assume that the firm levies a charge on each division for the use of funds.The charge is 10 percent on investment,and the accounting system deducts it in measuring divisional net income.Recalculate ROI using divisional net income after deduction of the use-of-funds charge in the numerator.
c.Which of these two measures do you think gives the better indication of operating performance? Explain your reasoning.

Accepted Answer

a.
 @#IMG-DLM&_TB2144_00 b.
 @#IMG-DLM&_TB2144_00 c.As the a

Question 6

Engine Division
The Engine Division provides engines for the Tractor Division of a company.The standard unit costs for Engine Division are as follows:
 
Refer to the Engine Division.What is the transfer price based on variable product costs plus a fixed fee of $210?

Accepted Answer

A) $210. 
B) $1,800. 
C) $2,100 
D) $2,310. 
A) $210. 
B) $1,800. 
C) $2,100 
D) $2,310.

Question 7

A shortcoming of return on investment (ROI)is that it may not lead managers to accept good investment opportunities if

Accepted Answer

A) ROI of the investment is higher than the present ROI of the division. 
B) the ROI of the investment is the same as the present ROI of the division. 
C) the ROI of the investment is lower than the present ROI of the division. 
D) None of the answers is correct. 
A) ROI of the investment is higher than the present ROI of the division. 
B) the ROI of the investment is the same as the present ROI of the division. 
C) the ROI of the investment is lower than the present ROI of the division. 
D) None of the answers is correct.

Question 8

What transfer pricing mechanism generally applies a normal markup to costs as a surrogate for market prices when intermediate market prices are not available?

Accepted Answer

A) Fixed price-based transfer pricing 
B) Full-absorption costing 
C) Activity-based costing 
D) Cost-plus transfer pricing 
A) Fixed price-based transfer pricing 
B) Full-absorption costing 
C) Activity-based costing 
D) Cost-plus transfer pricing

Question 9

Dukes Computing Systems
Dukes Computing Systems manufactures and sells various computer products and has two decentralized divisions: (1)Production and (2)Marketing.The Marketing Division has always purchased a particular motherboard from Production at $65 per unit.The Production Division is considering raising the price to $75 per unit.The Production Division's costs related to the motherboard production is as follows:
 
The Marketing Division handles the promotion and distribution of the motherboard purchases from the Production Division and sells each motherboard for $125.Marketing Division incurs monthly fixed costs of $5,000.Marketing Division sells 2,000 units per month.Marketing Division can buy the same motherboard from outside suppliers for $75.
Refer to Dukes Computing Systems.If the Marketing Division purchases the motherboard from outside suppliers,the facilities the Production Division uses to manufacture the motherboard would remain idle.The Production Division is operating below capacity because of weak global demand for the product.
What should be the motherboard transfer price be between the Production Division and Marketing Division in order for Dukes' to optimize profits?

Accepted Answer

A) $ 55 
B) $ 65 
C) $ 75 
D) $125 
A) $ 55 
B) $ 65 
C) $ 75 
D) $125

Question 10

Young Company has a tax rate of 40 percent.Information for the company is as follows:
 
What is the weighted cost of capital?

Accepted Answer

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

Question 11

Framing Division
The Framing Division had the following data:
 
Refer to the Framing Division.What is the return on investment for Year 2010?

Accepted Answer

A) 10%. 
B) 16%. 
C) 20%. 
D) 24%. 
A) 10%. 
B) 16%. 
C) 20%. 
D) 24%.

Question 12

Dukes Computing Systems
Dukes Computing Systems manufactures and sells various computer products and has two decentralized divisions: (1)Production and (2)Marketing.The Marketing Division has always purchased a particular motherboard from Production at $65 per unit.The Production Division is considering raising the price to $75 per unit.The Production Division's costs related to the motherboard production is as follows:
 
The Marketing Division handles the promotion and distribution of the motherboard purchases from the Production Division and sells each motherboard for $125.Marketing Division incurs monthly fixed costs of $5,000.Marketing Division sells 2,000 units per month.Marketing Division can buy the same motherboard from outside suppliers for $75.
Refer to Dukes Computing Systems.The Production Division is operating at maximum capacity because of strong worldwide demand for the product and the Production Division can sell all it produces to outside customers for $75 per motherboard.
What should be the motherboard transfer price between the Production Division and Marketing Division in order for Dukes' to optimize profits?

Accepted Answer

A) $ 55 
B) $ 65 
C) $ 75 
D) $125 
A) $ 55 
B) $ 65 
C) $ 75 
D) $125

Question 13

Bill's Computer Parts has two decentralized divisions,Hardware and Pre-Fab.Pre-Fab has always purchased certain units from Hardware at $230 per unit.Because Hardware plans to raise the price to $260 per unit,Pre-Fab desires to purchase these units from outside suppliers for $230 per unit.Hardware's costs follow: variable costs per unit,$200;annual fixed costs,$30,000.Annual production of these units for Pre-Fab is 1,500 units.If Pre-Fab buys from an outside supplier,the facilities Hardware uses to manufacture these units would remain idle.
Required:
What would be the result if Bill's Computer Parts' management enforces a transfer price of $260 per unit between Hardware and Pre-Fab?

Accepted Answer

It would cost the company $45,000 if Pre

Question 14

Terrapin Computing Systems
Terrapin Computing Systems manufactures and sells various computer products and has two decentralized divisions: (1)Production and (2)Marketing.The Marketing Division has always purchased a particular large tower case from Production at $58 per unit.The Production Division is considering raising the price to $75 per unit.The Production Division's costs related to the large tower case production is as follows:
 
The Marketing Division handles the promotion and distribution of the large tower case purchases from the Production Division and sells each large tower case for $100.Marketing Division incurs monthly fixed costs of $5,000.Marketing Division sells 2,000 units per month.Marketing Division can buy the same large tower case from outside suppliers for $75.
Refer to Terrapin Computing Systems.If the Marketing Division purchases the large tower case from outside suppliers,the facilities the Production Division uses to manufacture the large tower case would remain idle.The Production Division is operating below capacity because of weak global demand for the product.
What should be the large tower case transfer price between the Production Division and Marketing Division in order for Terrapin to optimize profits?

Accepted Answer

A) $ 55 
B) $ 58 
C) $ 75 
D) $100 
A) $ 55 
B) $ 58 
C) $ 75 
D) $100

Question 15

The minimum desired ROI rate

Accepted Answer

A) is based on industry averages. 
B) is based on a division's operating characteristics. 
C) is equal to the company's cost of funds. 
D) is set by generally accepted accounting principles. 
A) is based on industry averages. 
B) is based on a division's operating characteristics. 
C) is equal to the company's cost of funds. 
D) is set by generally accepted accounting principles.

Question 16

Which of the following best indicates how much shareholder wealth is being created by company managers?

Accepted Answer

A) Return on investment divided by total assets. 
B) Return on investment divided by total liabilities. 
C) Return on investment divided by retained earnings. 
D) Economic value added (EV
A) . 
A) Return on investment divided by total assets. 
B) Return on investment divided by total liabilities. 
C) Return on investment divided by retained earnings. 
D) Economic value added (EV
A) .

Question 17

Young Company has a tax rate of 40 percent.Information for the company is as follows:
 
What is the EVA if the before-tax operating income is $1,500,000?

Accepted Answer

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

Question 18

To achieve organizational goal congruence,how should management set transfer prices?

Accepted Answer

A) To allow for divisional autonomy and encourage managers to pursue corporate goals consistent with their own personal goals. 
B) Top management should set the selling division's revenue and the buying division's cost. 
C) Transfer prices should be compatible with the company's performance evaluation system. 
D) All of the answers are correct. 
A) To allow for divisional autonomy and encourage managers to pursue corporate goals consistent with their own personal goals. 
B) Top management should set the selling division's revenue and the buying division's cost. 
C) Transfer prices should be compatible with the company's performance evaluation system. 
D) All of the answers are correct.

Question 19

Management's challenge is to set transfer prices so that both the buyer and seller have goal congruence with respect to the organization's goals.How is this accomplished?

Accepted Answer

A) With no intervention from top management to set the transfer price for each transaction between divisions. 
B) With top management establishing transfer price policies that divisions follow. 
C) With division managers not engaging in negotiation to set transfer prices among themselves. 
D) All of the answers are correct. 
A) With no intervention from top management to set the transfer price for each transaction between divisions. 
B) With top management establishing transfer price policies that divisions follow. 
C) With division managers not engaging in negotiation to set transfer prices among themselves. 
D) All of the answers are correct.

Question 20

Which of the following statements is true concerning economic value added (EVA)?

Accepted Answer

A) EVA alleviates the shortcoming of the return on investment measurement. 
B) EVA calculates a percentage for comparison purposes. 
C) EVA is required by the New York Stock Exchange. 
D) EVA is the same as economic payback analysis. 
A) EVA alleviates the shortcoming of the return on investment measurement. 
B) EVA calculates a percentage for comparison purposes. 
C) EVA is required by the New York Stock Exchange. 
D) EVA is the same as economic payback analysis.

Which of the following is(are)the transfer price that would leave the buying division no worse off if an input is purchased from an internal division.

Framing Division The Framing Division had the following data: Refer to the Framing Division.What is the investment turnover ratio for Year 2010?

What has spawned a major political issue concerning the estimated cost to the United States Treasury of as much as $9 billion to $13 billion per year in lost taxes that could presumably be collected if transfer prices were calculated according to U.S.tax laws?

Framing Division The Framing Division had the following data: Refer to the Framing Division.What is the return on investment for Year 2008?

Engine Division The Engine Division provides engines for the Tractor Division of a company.The standard unit costs for Engine Division are as follows: Refer to the Engine Division.What is the transfer price based on variable product costs plus a fixed fee of $210?

A shortcoming of return on investment (ROI)is that it may not lead managers to accept good investment opportunities if

What transfer pricing mechanism generally applies a normal markup to costs as a surrogate for market prices when intermediate market prices are not available?

Young Company has a tax rate of 40 percent.Information for the company is as follows: What is the weighted cost of capital?

Framing Division The Framing Division had the following data: Refer to the Framing Division.What is the return on investment for Year 2010?

The minimum desired ROI rate

Which of the following best indicates how much shareholder wealth is being created by company managers?

Young Company has a tax rate of 40 percent.Information for the company is as follows: What is the EVA if the before-tax operating income is $1,500,000?

To achieve organizational goal congruence,how should management set transfer prices?

Management's challenge is to set transfer prices so that both the buyer and seller have goal congruence with respect to the organization's goals.How is this accomplished?

Which of the following statements is true concerning economic value added (EVA)?

Fundamental Concepts

Measuring Product Costs

Activity-Based Management

Strategic Management of Costs,quality,and Time

Cost Drivers and Cost Behavior

Financial Modeling for Short-Term Decision Making

Differential Cost Analysis for Operating Decisions

Capital Expenditure Decisions

Profit Planning and Budgeting

Profit and Cost Center Performance Evaluation

Incentive Issues

Allocating Costs to Responsibility Centers

Filters

Exam 11: Investment Center Performance Evaluation

Which of the following is(are)the transfer price that would leave the buying division no worse off if an input is purchased from an internal division.

Framing Division The Framing Division had the following data: Refer to the Framing Division.What is the investment turnover ratio for Year 2010?

What has spawned a major political issue concerning the estimated cost to the United States Treasury of as much as $9 billion to $13 billion per year in lost taxes that could presumably be collected if transfer prices were calculated according to U.S.tax laws?

Framing Division The Framing Division had the following data: Refer to the Framing Division.What is the return on investment for Year 2008?

Engine Division The Engine Division provides engines for the Tractor Division of a company.The standard unit costs for Engine Division are as follows: Refer to the Engine Division.What is the transfer price based on variable product costs plus a fixed fee of $210?

A shortcoming of return on investment (ROI)is that it may not lead managers to accept good investment opportunities if

What transfer pricing mechanism generally applies a normal markup to costs as a surrogate for market prices when intermediate market prices are not available?

Young Company has a tax rate of 40 percent.Information for the company is as follows: What is the weighted cost of capital?

Framing Division The Framing Division had the following data: Refer to the Framing Division.What is the return on investment for Year 2010?

The minimum desired ROI rate

Which of the following best indicates how much shareholder wealth is being created by company managers?

Young Company has a tax rate of 40 percent.Information for the company is as follows: What is the EVA if the before-tax operating income is $1,500,000?

To achieve organizational goal congruence,how should management set transfer prices?

Management's challenge is to set transfer prices so that both the buyer and seller have goal congruence with respect to the organization's goals.How is this accomplished?

Which of the following statements is true concerning economic value added (EVA)?

Fundamental Concepts

Measuring Product Costs

Activity-Based Management

Strategic Management of Costs,quality,and Time

Cost Drivers and Cost Behavior

Financial Modeling for Short-Term Decision Making

Differential Cost Analysis for Operating Decisions

Capital Expenditure Decisions

Profit Planning and Budgeting

Profit and Cost Center Performance Evaluation

Incentive Issues

Allocating Costs to Responsibility Centers

Filters