Question 1

A strategic business unit is:

Accepted Answer

A)  a cost centre. 
B)  either a revenue centre or a profit centre. 
C)  either a revenue centre or an investment centre. 
D)  either a profit centre or an investment centre. 
A)  a cost centre. 
B)  either a revenue centre or a profit centre. 
C)  either a revenue centre or an investment centre. 
D)  either a profit centre or an investment centre. D

Question 2

When managers within the various units of an organisation are committed to aligning their goals with the goals set by top management, the result is:

Accepted Answer

A)  goal congruence. 
B)  planning and control. 
C)  responsibility accounting. 
D)  delegation of decision making. 
A)  goal congruence. 
B)  planning and control. 
C)  responsibility accounting. 
D)  delegation of decision making. A

Question 3

The amount charged when one business unit sells goods or services to another business unit is called:

Accepted Answer

A)  an opportunity cost. 
B)  a transfer price. 
C)  a standard variable cost. 
D)  a residual price. 
A)  an opportunity cost. 
B)  a transfer price. 
C)  a standard variable cost. 
D)  a residual price. B

Question 4

Fruities Ltd has two divisions, Durian Division and Juice Division. Durian Division has an annual capacity of 10 000 units of durian juice concentrate. Juice Division's annual requirement of durian juice concentrate is 8000 units. There is no external market for durian juice concentrate; however, the Durian Division can use its facilities to manufacturer prune paste, which is a very popular product with unlimited external demand, at $13 per unit. The variable production cost of one unit of durian juice concentrate at Durian Division is $6, and the variable production cost of one unit of prune paste is $8. Durian division also incurs $1 additional shipping cost per unit when selling prune paste to external suppliers.
Using the transfer pricing formula, what is the per unit opportunity cost of selling one unit of durian juice concentrate to Juice Division?

Accepted Answer

A)  $0 
B)  $4 
C)  $5 
D)  $12 
A)  $0 
B)  $4 
C)  $5 
D)  $12

Question 5

Fruities Ltd has two divisions, Durian Division and Juice Division. Durian Division has an annual capacity of 10 000 units of durian juice concentrate. Juice Division's annual requirement of durian juice concentrate is 8000 units. The variable production cost of one unit of durian juice concentrate at Durian Division is $6, but the division incurs $1 additional shipping cost per unit when selling to external suppliers. The market price for the division's durian juice concentrate is $10 per unit, and currently, the external demand for Durian Division's durian juice concentrate is 5000 units.
Using the transfer pricing formula, Durian Division should charge the Juice Division:

Accepted Answer

A)  $6.00. 
B)  $7.13. 
C)  $9.00. 
D)  $10.00. 
A)  $6.00. 
B)  $7.13. 
C)  $9.00. 
D)  $10.00.

Question 6

When responsibility centres are established as revenue centres, one way of measuring performance in these centres is to evaluate the return on investment.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following is a benefit of decentralisation?

Accepted Answer

A)  Increased motivation of management 
B)  Goal congruence 
C)  Focus on the firm as a whole 
D)  Suboptimal decision making 
A)  Increased motivation of management 
B)  Goal congruence 
C)  Focus on the firm as a whole 
D)  Suboptimal decision making

Question 8

Which of the following managers is held responsible for only the costs incurred in the unit?

Accepted Answer

A)  Cost centre manager 
B)  Revenue centre manager 
C)  Profit centre manager 
D)  Investment centre manager 
A)  Cost centre manager 
B)  Revenue centre manager 
C)  Profit centre manager 
D)  Investment centre manager

Question 9

Fragrance Pty Ltd has two divisions: the Cologne Division and the Bottle Division. The company is decentralised and each division is evaluated as a profit centre. The Bottle Division produces bottles that can be used by the Cologne Division. The Bottle Division's variable manufacturing cost per unit is $2.00 and shipping costs are $0.10 per unit. The Bottle Division's external sales price is $3.00 per unit. No shipping costs are incurred on sales to the Cologne Division. The Cologne Division can purchase similar bottles in the external market for $2.50.
The Bottle Division has sufficient capacity to meet all external market demands in addition to meeting the demands of the Cologne Division. Using the general rule, the minimum transfer price from the Bottle Division to the Cologne Division would be:

Accepted Answer

A)  $2.00 
B)  $2.10 
C)  $2.50 
D)  $2.90 
A)  $2.00 
B)  $2.10 
C)  $2.50 
D)  $2.90

Question 10

Distinguish between shared service units and centralised service units.

Accepted Answer

The answer of Distinguish between shared service units and centralised...

Question 11

Although shared service units are generally established as profit centres it is often acceptable if a zero profit is achieved.

Accepted Answer

A) True 
 B)False

Question 12

Polly Woodside Maritime Division purchases from an outside supplier for $52 per unit. The company's Shore Division, which has excess capacity, makes and sells the same part for external customers at a variable cost of $38 and a selling price of $58. If Shore Division commences sales to Maritime Division it will (1) use the general rule and (2) be able to reduce the variable cost on internal transfers by $4. If external sales are not affected, Shore Division should establish a transfer price of:

Accepted Answer

A)  $34 
B)  $38 
C)  $58 
D)  None of the given answers 
A)  $34 
B)  $38 
C)  $58 
D)  None of the given answers

Question 13

Fruities Ltd has two divisions, Durian Division and Juice Division. Durian Division has an annual capacity of 10 000 units of durian juice concentrate. Juice Division's annual requirement of durian juice concentrate is 8000 units. Fruities Ltd requires that divisions should purchase inputs internally where available, and uses a cost-plus transfer price policy, where transfer price is set at variable cost plus 25 per cent. Therefore, Durian Division always satisfies the demand of the Juice Division first, before selling the remaining durian concentrate to external suppliers at the market price of $10 per unit. The variable cost of one unit of durian juice concentrate at Durian Division is $6. The external demand for Durian Division's durian juice concentrate is 2000 units.
What is the difference in the overall profit of Fruities Ltd under the cost-plus transfer price policy and a market-price transfer price policy?

Accepted Answer

A)  Fruities Ltd's profit is $20 000 lower under the cost-plus transfer pricing approach. 
B)  Fruities Ltd's profit is $20 000 higher under the cost-plus transfer pricing approach. 
C)  Fruities Ltd's profit is $25 000 higher under the cost-plus transfer pricing approach. 
D)  There is no difference under the two policies. 
A)  Fruities Ltd's profit is $20 000 lower under the cost-plus transfer pricing approach. 
B)  Fruities Ltd's profit is $20 000 higher under the cost-plus transfer pricing approach. 
C)  Fruities Ltd's profit is $25 000 higher under the cost-plus transfer pricing approach. 
D)  There is no difference under the two policies.

Question 14

Fragrance Pty Ltd has two divisions: the Cologne Division and the Bottle Division. The company is decentralised and each division is evaluated as a profit centre. The Bottle Division produces bottles that can be used by the Cologne Division. The Bottle Division's variable manufacturing cost per unit is $2.00 and shipping costs are $0.10 per unit. The Bottle Division's external sales price is $3.00 per unit. No shipping costs are incurred on sales to the Cologne Division. The Cologne Division can purchase similar bottles in the external market for $2.50.
Assume the Bottle Division has no excess capacity and can sell everything produced externally. What is the maximum amount Cologne Division would be willing to pay for the bottles?

Accepted Answer

A)  $2.00 
B)  $2.10 
C)  $2.50 
D)  $2.90 
A)  $2.00 
B)  $2.10 
C)  $2.50 
D)  $2.90

Question 15

Business unit profit and loss statements show:

Accepted Answer

A)  profits for the major responsibility centres and for the organisation as a whole. 
B)  profits by quarter for the organisation as a whole. 
C)  comparative profits by year for the organisation as a whole. 
D)  All of the given answers 
A)  profits for the major responsibility centres and for the organisation as a whole. 
B)  profits by quarter for the organisation as a whole. 
C)  comparative profits by year for the organisation as a whole. 
D)  All of the given answers

Question 16

Which of the following statements is/are true?
When a multinational company transfers goods or services between business units located in different countries:
i. the tax rates of the different countries will have no effect on overall company profits.
ii. the result is a moving of profits from one country to another.
iii. the company will consider the tax rates of the different countries when determining the transfer price.

Accepted Answer

A)  i 
B)  ii 
C)  i and ii 
D)  ii and iii 
A)  i 
B)  ii 
C)  i and ii 
D)  ii and iii

Question 17

Discuss why transfer prices are effectively internal selling prices in medium to large organisations and why organisations have adopted this approach.

Accepted Answer

In decentralised organisations goods and

Question 18

Symonds Bendigo Division purchases from an outside supplier for $52 per unit. The company's Ballarat Division, which has no excess capacity, makes and sells the same part for external customers at a variable cost of $38 and a selling price of $58. If Ballarat commences sales to Bendigo it will (1) use the general rule and (2) be able to reduce the variable cost on internal transfers by $4. If external sales are not affected, Ballarat should establish a transfer price of:

Accepted Answer

A)  $34 
B)  $38 
C)  $54 
D)  $58 
A)  $34 
B)  $38 
C)  $54 
D)  $58

Question 19

Business unit reporting shows profit and loss statements for the company as a whole and for:

Accepted Answer

A)  its major business units. 
B)  controllable expenses. 
C)  uncontrollable expenses. 
D)  the contribution margin. 
A)  its major business units. 
B)  controllable expenses. 
C)  uncontrollable expenses. 
D)  the contribution margin.

Question 20

The general rule that gives guidance for determining the appropriate cost price specifies the optimal transfer price as the sum of two cost components.

Accepted Answer

A) True 
 B)False

A strategic business unit is:

When managers within the various units of an organisation are committed to aligning their goals with the goals set by top management, the result is:

The amount charged when one business unit sells goods or services to another business unit is called:

When responsibility centres are established as revenue centres, one way of measuring performance in these centres is to evaluate the return on investment.

Which of the following is a benefit of decentralisation?

Which of the following managers is held responsible for only the costs incurred in the unit?

Distinguish between shared service units and centralised service units.

Although shared service units are generally established as profit centres it is often acceptable if a zero profit is achieved.

Business unit profit and loss statements show:

Discuss why transfer prices are effectively internal selling prices in medium to large organisations and why organisations have adopted this approach.

Business unit reporting shows profit and loss statements for the company as a whole and for:

The general rule that gives guidance for determining the appropriate cost price specifies the optimal transfer price as the sum of two cost components.

Management Accounting: Information for Creating Value and Managing Resources

Management Accounting: Cost Terms and Concepts

Cost Behaviour, Cost Drivers and Cost Estimation

Product Costing Systems

Process Costing and Operation Costing

Service Costing

A Closer Look at Overhead Costs

Activity-Based Costing

Budgeting Systems

Standard Costs for Control: Direct Material and Direct Labour

Standard Costs for Control: Flexible Budgets and Manufacturing Overhead

Financial Performance Measures and Incentive Schemes

Strategic Performance Measurement Systems

Managing Suppliers and Customers

Managing Costs and Quality

Sustainability and Management Accounting

Cost Volume Profit Analysis

Information for Decisions: Relevant Costs and Benefits

Pricing and Product Mix Decisions

Information for Capital Expenditure Decisions

Filters

Exam 12: Managing and Reporting Performance

A strategic business unit is:

When managers within the various units of an organisation are committed to aligning their goals with the goals set by top management, the result is:

The amount charged when one business unit sells goods or services to another business unit is called:

When responsibility centres are established as revenue centres, one way of measuring performance in these centres is to evaluate the return on investment.

Which of the following is a benefit of decentralisation?

Which of the following managers is held responsible for only the costs incurred in the unit?

Distinguish between shared service units and centralised service units.

Although shared service units are generally established as profit centres it is often acceptable if a zero profit is achieved.

Business unit profit and loss statements show:

Discuss why transfer prices are effectively internal selling prices in medium to large organisations and why organisations have adopted this approach.

Business unit reporting shows profit and loss statements for the company as a whole and for:

The general rule that gives guidance for determining the appropriate cost price specifies the optimal transfer price as the sum of two cost components.

Management Accounting: Information for Creating Value and Managing Resources

Management Accounting: Cost Terms and Concepts

Cost Behaviour, Cost Drivers and Cost Estimation

Product Costing Systems

Process Costing and Operation Costing

Service Costing

A Closer Look at Overhead Costs

Activity-Based Costing

Budgeting Systems

Standard Costs for Control: Direct Material and Direct Labour

Standard Costs for Control: Flexible Budgets and Manufacturing Overhead

Financial Performance Measures and Incentive Schemes

Strategic Performance Measurement Systems

Managing Suppliers and Customers

Managing Costs and Quality

Sustainability and Management Accounting

Cost Volume Profit Analysis

Information for Decisions: Relevant Costs and Benefits

Pricing and Product Mix Decisions

Information for Capital Expenditure Decisions

Filters