Question 1

When measuring a division's operating costs,indirect controllable operating costs include

Accepted Answer

A) labor used in the division's production. 
B) salary of the division manager (controlled by top management) 
C) costs of providing centralized services,such as data processing and employee training. 
D) company president's salary. 
A) labor used in the division's production. 
B) salary of the division manager (controlled by top management) 
C) costs of providing centralized services,such as data processing and employee training. 
D) company president's salary.

Question 2

Framing Division
The Framing Division had the following data:
 
Refer to the Framing Division.What is the profit margin percentage for Year 2009?

Accepted Answer

A) 6% 
B) 8% 
C) 10% 
D) 12% 
A) 6% 
B) 8% 
C) 10% 
D) 12%

Question 3

North Carolina Company produces computers and computer components.The company is organized into several divisions that operate essentially as autonomous companies.The firm permits division managers to make investment and production-level decisions.The division managers can also decide whether to sell to other divisions or to outside customers.Networks Division produces a critical component for computers manufactured by Computers Division.It has been selling this component to Computers for $3,000 per unit.Networks recently purchased new equipment for producing the component.To offset its higher depreciation charges,Networks increased its price to $3,200 per unit.The manager of Networks has asked the president to instruct Computers to purchase the component for the $3,200 price rather than to permit Computers to purchase externally for $3,000 per unit.The following information is obtained from the company's records: Computers' annual purchases of the component,400 units;Networks' variable costs per unit,$2,400;Networks' fixed costs per unit,$400.
Required:
a.Assume that the firm has no alternative uses for Networks' idle capacity.Will the company as a whole benefit if Computers purchases the component externally for $3,000? Explain.
b.Assume that the firm can use the idle capacity of Networks for other purposes,resulting in cash operating savings of $150,000.Will the company as a whole benefit if Computers purchases the component externally for $3,000? Explain.
c.Assume the same facts as in part b.except that the outside market price drops to $2,800 per unit.Will the company as a whole benefit if Computers purchases the component externally for $2,800? Explain.
d.As president,how would you respond to the manager of Networks? Discuss each scenario described in parts a. ,b. ,and c.

Accepted Answer

a.
 @#IMG-DLM&_TB2144_00 b.
 @#IMG-DLM&_TB2144_00 c.
 @#IMG-DLM&_TB214

Question 4

Bubbling Springs,Inc. ,produces bottled drinks.Division #1 acquires the water,adds carbonation,and sells it in bulk quantities to Division # 2 of Spring Waters and to outside buyers.Division # 2 buys carbonated water in bulk,adds flavoring,bottles it,and sells it.Last year,Division #1 produced 1,500,000 gallons,of which it sold 1,300,000 gallons to the Division # 2 and the remaining 200,000 gallons to outsiders for $0.40 per gallon.Division #2 processed the 1,300,000 gallons,which it sold for $1,500,000.Division #1's variable costs were $440,000 and its fixed costs were $120,000.The Division # 2 incurred an additional variable cost of $320,000 and $200,000 of fixed costs.Both divisions operated below capacity.
Required:
a.Prepare division income statements assuming the transfer price is at the external market price of $0.40 per gallon.
b.Repeat part a.assuming a negotiated transfer price of $0.30 per gallon is used.
c.Respond to the statement: "The choice of a particular transfer price is immaterial to the company as a whole."

Accepted Answer

a.& b.
 @#IMG-DLM&_TB2144_00 (a)$600,000 = $.40 X

Question 5

Which of these is a transfer pricing methodology that preserves the autonomy of the division managers?

Accepted Answer

A) cost-plus. 
B) actual costs. 
C) negotiated. 
D) predetermined. 
A) cost-plus. 
B) actual costs. 
C) negotiated. 
D) predetermined.

Question 6

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.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 large tower case.
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 7

Marlow Company
The following information pertains to the three divisions of Marlow Company:
 
Refer to Marlow Company.What is the sales revenue for Division Y?

Accepted Answer

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

Question 8

What transfer pricing mechanism is used when a company does not have a measure of differential or variable cost?

Accepted Answer

A) Market price-based transfer pricing 
B) Full-absorption costing 
C) Activity-based costing 
D) Actual cost-based transfer pricing 
A) Market price-based transfer pricing 
B) Full-absorption costing 
C) Activity-based costing 
D) Actual cost-based transfer pricing

Question 9

Which of the following is management's challenge when setting transfer prices?

Accepted Answer

A) Ensuring the buyer has goal congruence with respect to the organization's goals. 
B) Ensuring the seller has goal congruence with respect to the organization's goals. 
C) Ensuring either the buyer or the seller,but not both,has goal congruence with respect to the organization's goals. 
D) Ensuring both the buyer and seller have goal congruence with respect to the organization's goals. 
A) Ensuring the buyer has goal congruence with respect to the organization's goals. 
B) Ensuring the seller has goal congruence with respect to the organization's goals. 
C) Ensuring either the buyer or the seller,but not both,has goal congruence with respect to the organization's goals. 
D) Ensuring both the buyer and seller have goal congruence with respect to the organization's goals.

Question 10

Because tax rates are different in different countries,companies have incentives to set transfer prices that will

Accepted Answer

A) increase revenues in low-tax countries and increase costs in high-tax countries. 
B) increase costs in low-tax countries and increase revenues in high-tax countries. 
C) decrease costs in high-tax countries and decrease revenues in low-tax countries. 
D) None of the answers is correct. 
A) increase revenues in low-tax countries and increase costs in high-tax countries. 
B) increase costs in low-tax countries and increase revenues in high-tax countries. 
C) decrease costs in high-tax countries and decrease revenues in low-tax countries. 
D) None of the answers is correct.

Question 11

If the National Division of American Products Company had a investment turnover ratio of 4.2 and a profit margin percentage 10%,the return on investment would be

Accepted Answer

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

Question 12

Which of the following describes a transfer pricing system based on either variable costs or full-absorption costs,and applies a normal markup to costs as a surrogate for market prices when intermediate market prices are not available?

Accepted Answer

A) hybrid. 
B) dual. 
C) cost-plus. 
D) mark-to-market. 
A) hybrid. 
B) dual. 
C) cost-plus. 
D) mark-to-market.

Question 13

Which of the following is the correct calculation for Division return on investment?

Accepted Answer

A) Divide division profit margin by division investment. 
B) Divide profit margin by division investment. 
C) Divide profit margin by division revenue. 
D) Divide division revenue by division investment. 
A) Divide division profit margin by division investment. 
B) Divide profit margin by division investment. 
C) Divide profit margin by division revenue. 
D) Divide division revenue by division investment.

Question 14

Framing Division
The Framing Division had the following data:
 
Refer to the Framing Division.What is the investment turnover ratio for Year 2009?

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 15

The Bat Division of Baseball Company has just revised its actual cost data for 2008.Bat Division transfers goods to the Sport Division.Sport Division can buy the same goods in the open market for $122 each.Bat's new cost data are as follows:
   
Current production is 200,000 units,and the Bat Division has a capacity of 300,000 units.
Required:

Accepted Answer

The answer of The Bat Division of Baseball Company has...

Question 16

What transfer pricing basis is considered a good estimation of differential cost plus opportunity cost?

Accepted Answer

A) Market price-based transfer pricing 
B) Variable cost-based transfer pricing 
C) Fixed price-based transfer pricing 
D) Fixed cost-based transfer pricing 
A) Market price-based transfer pricing 
B) Variable cost-based transfer pricing 
C) Fixed price-based transfer pricing 
D) Fixed cost-based transfer pricing

Question 17

Patterson Division had sales revenue of $200,000,operating profit of $10,000,and a division investment of $300,000.Its profit margin percentage is

Accepted Answer

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

Question 18

In calculating return on investment (ROI),when measuring the investment base most firms use

Accepted Answer

A) acquisition cost. 
B) net book value. 
C) replacement cost. 
D) MCRS depreciated value. 
A) acquisition cost. 
B) net book value. 
C) replacement cost. 
D) MCRS depreciated value.

Question 19

Which statement is true concerning the establishment of transfer prices?

Accepted Answer

A) If the selling division is operating at capacity,the transfer price should be the sum of fixed and variable costs of production. 
B) If the selling division has idle capacity,and the idle facilities cannot be used for other purposes,the transfer price should be at least the variable costs of production. 
C) If the selling division is operating below capacity,the transfer price should be discounted. 
D) None of the answers is correct. 
A) If the selling division is operating at capacity,the transfer price should be the sum of fixed and variable costs of production. 
B) If the selling division has idle capacity,and the idle facilities cannot be used for other purposes,the transfer price should be at least the variable costs of production. 
C) If the selling division is operating below capacity,the transfer price should be discounted. 
D) None of the answers is correct.

Question 20

Colorado Furniture
Colorado Furniture had the following historical accounting data,per hundred board feet,concerning one of its products:
 
The shelving is normally transferred internally from the Cutting Division to the Finishing Division.It also may be sold externally for $110 per hundred board feet.The minimum profit level accepted by the company is a markup of 20 percent.
Refer to Colorado Furniture.If the variable manufacturing cost transfer price method is used without a fixed fee,Colorado Furniture's transfer price will be

Accepted Answer

A) $68. 
B) $84. 
C) $56. 
D) $64. 
A) $68. 
B) $84. 
C) $56. 
D) $64.

When measuring a division's operating costs,indirect controllable operating costs include

Framing Division The Framing Division had the following data: Refer to the Framing Division.What is the profit margin percentage for Year 2009?

Which of these is a transfer pricing methodology that preserves the autonomy of the division managers?

Marlow Company The following information pertains to the three divisions of Marlow Company: Refer to Marlow Company.What is the sales revenue for Division Y?

What transfer pricing mechanism is used when a company does not have a measure of differential or variable cost?

Which of the following is management's challenge when setting transfer prices?

Because tax rates are different in different countries,companies have incentives to set transfer prices that will

If the National Division of American Products Company had a investment turnover ratio of 4.2 and a profit margin percentage 10%,the return on investment would be

Which of the following describes a transfer pricing system based on either variable costs or full-absorption costs,and applies a normal markup to costs as a surrogate for market prices when intermediate market prices are not available?

Which of the following is the correct calculation for Division return on investment?

Framing Division The Framing Division had the following data: Refer to the Framing Division.What is the investment turnover ratio for Year 2009?

What transfer pricing basis is considered a good estimation of differential cost plus opportunity cost?

Patterson Division had sales revenue of $200,000,operating profit of $10,000,and a division investment of $300,000.Its profit margin percentage is

In calculating return on investment (ROI),when measuring the investment base most firms use

Which statement is true concerning the establishment of transfer prices?

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

When measuring a division's operating costs,indirect controllable operating costs include

Framing Division The Framing Division had the following data: Refer to the Framing Division.What is the profit margin percentage for Year 2009?

Which of these is a transfer pricing methodology that preserves the autonomy of the division managers?

Marlow Company The following information pertains to the three divisions of Marlow Company: Refer to Marlow Company.What is the sales revenue for Division Y?

What transfer pricing mechanism is used when a company does not have a measure of differential or variable cost?

Which of the following is management's challenge when setting transfer prices?

Because tax rates are different in different countries,companies have incentives to set transfer prices that will

If the National Division of American Products Company had a investment turnover ratio of 4.2 and a profit margin percentage 10%,the return on investment would be

Which of the following describes a transfer pricing system based on either variable costs or full-absorption costs,and applies a normal markup to costs as a surrogate for market prices when intermediate market prices are not available?

Which of the following is the correct calculation for Division return on investment?

Framing Division The Framing Division had the following data: Refer to the Framing Division.What is the investment turnover ratio for Year 2009?

What transfer pricing basis is considered a good estimation of differential cost plus opportunity cost?

Patterson Division had sales revenue of $200,000,operating profit of $10,000,and a division investment of $300,000.Its profit margin percentage is

In calculating return on investment (ROI),when measuring the investment base most firms use

Which statement is true concerning the establishment of transfer prices?

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