Question 1

The general principle on setting transfer prices that are in the organization's best interests is:

Accepted Answer

A) outlay cost plus opportunity cost of the resource at the point of transfer. 
B) variable costs plus opportunity cost of the resource at the point of transfer. 
C) lost contribution margin less the allocated fixed costs for the selling division. 
D) gross margin for the buying division plus the gross margin for the selling division. 
A) outlay cost plus opportunity cost of the resource at the point of transfer. 
B) variable costs plus opportunity cost of the resource at the point of transfer. 
C) lost contribution margin less the allocated fixed costs for the selling division. 
D) gross margin for the buying division plus the gross margin for the selling division. A

Question 2

In general,negotiated transfer prices fall in a range between the selling division's differential costs and the buying division's market price.The seller's differential costs are the lowest the seller would accept;the buyer's market price is the highest the buyer would be willing to pay.

Accepted Answer

A) True 
 B)False  True

Question 3

Given the following data for Division A:   Assume that Division A is selling all it can produce to outside customers.If it sells to Division B,$1 can be avoided in variable cost per unit.Division B is presently purchasing from an outside supplier at $38 per unit.From the point of view of the company as a whole,any sales to Division B should be priced at:

Accepted Answer

A) $40. 
B) $39. 
C) $38. 
D) $37. 
E) The company would not want the transfer to take place. 
A) $40. 
B) $39. 
C) $38. 
D) $37. 
E) The company would not want the transfer to take place. E

Question 4

Multinational firms often face conflicting pressures when developing transfer pricing policies.Tax avoidance results when:

Accepted Answer

A) inflated transfer prices are used to reduce the profits of divisions in high tax-rate countries. 
B) inflated transfer prices are used to reduce the profits of divisions in low tax-rate countries. 
C) cost-based transfer prices are used instead of market transfer prices in high tax-rate countries. 
D) cost-based transfer prices are used instead of negotiated market transfer prices in low tax-rate countries. 
A) inflated transfer prices are used to reduce the profits of divisions in high tax-rate countries. 
B) inflated transfer prices are used to reduce the profits of divisions in low tax-rate countries. 
C) cost-based transfer prices are used instead of market transfer prices in high tax-rate countries. 
D) cost-based transfer prices are used instead of negotiated market transfer prices in low tax-rate countries.

Question 5

Tax avoidance is unethical when inflated transfer prices are used in international transactions to shift profits from a division in one country to a division in another country.The key is "inflated" prices.Market based prices would not be unethical.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following statements is (are)false? (A)From an organization's viewpoint,transfer prices have no effect on total profits assuming the transfer occurs between the two responsibility centers.(B)A transfer price is the value assigned to the transfer of goods or services between divisions within the same organization.

Accepted Answer

A) Only A is false. 
B) Only B is false. 
C) Both A and B are false. 
D) Neither A nor B is false. 
A) Only A is false. 
B) Only B is false. 
C) Both A and B are false. 
D) Neither A nor B is false.

Question 7

Chipper Division of Acme Corp.sells 80,000 units of part Z-25 to the outside market.Part Z-25 sells for $40,has a variable cost of $22,and a fixed cost per unit of $10.Chipper has a capacity to produce 100,000 units per period.Jones Division currently purchases 10,000 units of part Z-25 from Chipper for $40.Jones has been approached by an outside supplier willing to supply the parts for $36.If Acme uses a negotiated transfer pricing system,what is the maximum transfer price that should be charged for this transaction?

Accepted Answer

A) $40. 
B) $36. 
C) $32. 
D) $22. 
A) $40. 
B) $36. 
C) $32. 
D) $22.

Question 8

Cruises,Inc. ,operates two divisions: (1)a management division that owns and manages cruise ships in the Florida Keys and (2)a repair division that operates a dry dock in Marble Sand Florida.The repair division works on company ships,as well as other large-hull ships.The repair division has an estimated variable cost of $28.50 per labor-hour.The repair division has a backlog of work for outside ships.They charge $48.00 per hour for labor,which is standard for this type of work.The management division complained that it could hire its own repair workers for $30.00 per hour,including leasing an adequate work area.If the repair division had idle capacity,what is the minimum transfer price that the repair division should obtain?

Accepted Answer

A) $28.50. 
B) $30.00. 
C) $39.00. 
D) $46.50. 
A) $28.50. 
B) $30.00. 
C) $39.00. 
D) $46.50.

Question 9

A transfer price is the value assigned to the transfer of goods or services between divisions within the same organization.This is the definition of transfer pricing.

Accepted Answer

A) True 
 B)False

Question 10

When there is no intermediate market:

Accepted Answer

A) there is no optimal transfer price. 
B) the selling division cannot transfer its goods internally. 
C) the buying division cannot purchase its goods externally. 
D) there is no reason for top management to intervene in transfer pricing disputes. 
A) there is no optimal transfer price. 
B) the selling division cannot transfer its goods internally. 
C) the buying division cannot purchase its goods externally. 
D) there is no reason for top management to intervene in transfer pricing disputes.

Question 11

Cohasset Company currently manufactures all component parts used in the manufacture of various hand tools.Hurley Division produces a steel handle used in three different tools.The budget for these handles is 120,000 units with the following unit cost.   Ironwood Division purchases 20,000 handles from Hurley Division and completes the hand tools.An outside supplier,R & M Steel,has offered to supply 20,000 units of the handle to Ironwood Division for $1.25 per unit.Hurley currently has idle capacity that cannot be used.If Cohasset would like to develop a range of transfer prices,what would be the minimum transfer price that Hurley would be willing to accept?

Accepted Answer

A) $1.00. 
B) $1.10. 
C) $1.25. 
D) $1.30. 
A) $1.00. 
B) $1.10. 
C) $1.25. 
D) $1.30.

Question 12

Chipper Division of Acme Corp.sells 80,000 units of part Z-25 to the outside market.Part Z-25 sells for $40,has a variable cost of $22,and a fixed cost per unit of $10.Chipper has a capacity to produce 100,000 units per period.Jones Division currently purchases 10,000 units of part Z-25 from Chipper for $40.Jones has been approached by an outside supplier willing to supply the parts for $36.If Acme uses a negotiated transfer pricing system,what is the minimum transfer price that should be charged for this transaction?

Accepted Answer

A) $40. 
B) $36. 
C) $32. 
D) $22. 
A) $40. 
B) $36. 
C) $32. 
D) $22.

Question 13

Which of the following responsibility centers is affected by the use of market-based transfer prices?

Accepted Answer

A) Cost center. 
B) Profit center. 
C) Revenue center. 
D) Production center. 
A) Cost center. 
B) Profit center. 
C) Revenue center. 
D) Production center.

Question 14

Cascade Cliffs,Inc. ,operates two divisions: (1)a management division that owns and manages bulk carriers on the Great Lakes and (2)a repair division that operates a dry dock in Cheboygan,Michigan.The repair division works on company ships,as well as other large-hull ships.The repair division has an estimated variable cost of $37 per labor-hour.The repair division has a backlog of work for outside ships.They charge $70.00 per hour for labor,which is standard for this type of work.The management division complained that it could hire its own repair workers for $45.00 per hour,including leasing an adequate work area.What is the maximum transfer price per hour that the management division should pay?

Accepted Answer

A) $33.00. 
B) $37.00. 
C) $45.00. 
D) $70.00. 
A) $33.00. 
B) $37.00. 
C) $45.00. 
D) $70.00.

Question 15

The optimal transfer price when there are intermediate markets is:

Accepted Answer

A) full cost. 
B) outlay costs. 
C) variable cost. 
D) market prices. 
A) full cost. 
B) outlay costs. 
C) variable cost. 
D) market prices.

Question 16

Some managers prefer to use cost rather than market price in controlling transfers between divisions.If cost is to be used,then it should be:

Accepted Answer

A) full cost. 
B) direct cost. 
C) variable cost. 
D) standard cost. 
A) full cost. 
B) direct cost. 
C) variable cost. 
D) standard cost.

Question 17

Which of the following transfer pricing methods must be used in segment reporting by the oil and gas industry?

Accepted Answer

A) Absorption cost. 
B) Differential cost. 
C) Negotiated market price. 
D) Market price. 
A) Absorption cost. 
B) Differential cost. 
C) Negotiated market price. 
D) Market price.

Question 18

A company is highly centralized.Division X,which is operating at capacity,produces a component that it currently sells in a perfectly competitive market for $13 per unit.At the current level of production,the fixed cost of producing this component is $4 per unit and the variable cost is $7 per unit.Division Y would like to purchase this component from Division X.The price that Division X should charge Division Y per unit for this component is:

Accepted Answer

A) $7. 
B) $11. 
C) $13. 
D) $15. 
A) $7. 
B) $11. 
C) $13. 
D) $15.

Question 19

Which of the following is not an appropriate use of transfer pricing?

Accepted Answer

A) Product costing. 
B) Decision making. 
C) Establishing standards. 
D) Evaluating performance. 
A) Product costing. 
B) Decision making. 
C) Establishing standards. 
D) Evaluating performance.

Question 20

A transfer made at cost does not motivate the selling division to transfer its goods or services internally.There is no profit for the selling division.

Accepted Answer

A) True 
 B)False

The general principle on setting transfer prices that are in the organization's best interests is:

In general,negotiated transfer prices fall in a range between the selling division's differential costs and the buying division's market price.The seller's differential costs are the lowest the seller would accept;the buyer's market price is the highest the buyer would be willing to pay.

Multinational firms often face conflicting pressures when developing transfer pricing policies.Tax avoidance results when:

Tax avoidance is unethical when inflated transfer prices are used in international transactions to shift profits from a division in one country to a division in another country.The key is "inflated" prices.Market based prices would not be unethical.

A transfer price is the value assigned to the transfer of goods or services between divisions within the same organization.This is the definition of transfer pricing.

When there is no intermediate market:

Which of the following responsibility centers is affected by the use of market-based transfer prices?

The optimal transfer price when there are intermediate markets is:

Some managers prefer to use cost rather than market price in controlling transfers between divisions.If cost is to be used,then it should be:

Which of the following transfer pricing methods must be used in segment reporting by the oil and gas industry?

Which of the following is not an appropriate use of transfer pricing?

A transfer made at cost does not motivate the selling division to transfer its goods or services internally.There is no profit for the selling division.

Cost Accounting: Information for Decision Making

Cost Concepts and Behavior

Fundamentals of Cost-Volume-Profit Analysis

Fundamentals of Cost Analysis for Decision Making

Cost Estimation

Fundamentals of Product and Service Costing

Job Costing

Process Costing

Activity-Based Costing

Fundamentals of Cost Management

Service Department and Joint Cost Allocation

Fundamentals of Management Control Systems

Planning and Budgeting

Business Unit Performance Measurement

Fundamentals of Variance Analysis

Additional Topics in Variance Analysis

Performance Measurement to Support Business Strategy

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Exam 15: Transfer Pricing

The general principle on setting transfer prices that are in the organization's best interests is:

In general,negotiated transfer prices fall in a range between the selling division's differential costs and the buying division's market price.The seller's differential costs are the lowest the seller would accept;the buyer's market price is the highest the buyer would be willing to pay.

Multinational firms often face conflicting pressures when developing transfer pricing policies.Tax avoidance results when:

Tax avoidance is unethical when inflated transfer prices are used in international transactions to shift profits from a division in one country to a division in another country.The key is "inflated" prices.Market based prices would not be unethical.

A transfer price is the value assigned to the transfer of goods or services between divisions within the same organization.This is the definition of transfer pricing.

When there is no intermediate market:

Which of the following responsibility centers is affected by the use of market-based transfer prices?

The optimal transfer price when there are intermediate markets is:

Some managers prefer to use cost rather than market price in controlling transfers between divisions.If cost is to be used,then it should be:

Which of the following transfer pricing methods must be used in segment reporting by the oil and gas industry?

Which of the following is not an appropriate use of transfer pricing?

A transfer made at cost does not motivate the selling division to transfer its goods or services internally.There is no profit for the selling division.

Cost Accounting: Information for Decision Making

Cost Concepts and Behavior

Fundamentals of Cost-Volume-Profit Analysis

Fundamentals of Cost Analysis for Decision Making

Cost Estimation

Fundamentals of Product and Service Costing

Job Costing

Process Costing

Activity-Based Costing

Fundamentals of Cost Management

Service Department and Joint Cost Allocation

Fundamentals of Management Control Systems

Planning and Budgeting

Business Unit Performance Measurement

Fundamentals of Variance Analysis

Additional Topics in Variance Analysis

Performance Measurement to Support Business Strategy

Filters