Exam 12: Managing and Reporting Performance

Corporate policy at Weber Pty Ltd requires that all transfers between divisions be recorded at variable cost as a transfer price. Divisional managers have complete autonomy in choosing their sources of customers and suppliers. The Milling Division sells a product called RK2. Forty per cent of the sales of RK2 are to the Products Division, while the remainder of the sales are to outside customers. The manager of the Milling Division is evaluating a special offer from an outside customer for 10 000 units of RK2 at a per unit price of $15. If the special offer were accepted, the Milling Division would be unable to supply those units to the Products Division. The Products Division could purchase those units from another supplier for $17 per unit. Annual capacity for the Milling Division is 25 000 units. The 2014 budget information for the Milling Division, based on full capacity, is presented below. Assume the company permits the division managers to negotiate a transfer price. The managers agree to a $15 transfer price adjusted to share equally the additional gross margin to Milling Division resulting from the sale to the Products Division. What is the agreed transfer price?

Which of the following managers is held accountable for the unit's profit and invested capital?

Which of the following managers is held accountable for the profit of the unit?

When management is using performance reports to evaluate the performance of a business unit manager, which of the following costs should be considered?

Which of the following are risks associated with self-managed teams? i. Deterioration in job satisfaction of team members ii. Less opportunity to improve the quality of service iii. Slower response time to customer needs

Which of the following is not a benefit of decentralisation?

Which of the following might you expect to see being used as a performance measure for an investment centre?

Which of the following is a key problem with the use of market-based transfer prices?

Which of the following is a problem with the use of cost-based transfer pricing?

Which of the following might you expect to see being used as a performance measure for a cost centre?

When using cost-based transfer prices, actual costs should be used in preference to standard costs.

Which of the following statements is false, with respect to a negotiated transfer price?

Responsibility accounting:

The following information was taken from the business united profit and loss statement of Resell Real Estate Agents for 2014: In addition, the company incurred common fixed costs of $18 000. What was the business unit margin of the Tamworth Division during 2014?

Which of the following statements about transfer prices is/are true? i. When the producing division has excess capacity and the external market is imperfectly competitive, the general transfer-pricing rule and the external market price will be the same. ii. If the transfer price is set at the market price, the supplying division will be indifferent to selling internally or externally. iii. If the transfer price is set at the market price, the buying division will usually purchase goods from inside its organisation, if product specifications are met.

Which of the following statements is false?

When management is using performance reports to evaluate the economic performance of a business unit, which of the following costs should be considered?

A sales department manager is an example of a:

When the transfer price chosen by management charges another department the price that would be charged to outside customers, this type of transfer pricing is called:

Which of the following are benefits of self-managed teams? i. Improved customer service ii. Increased goal congruence among team members iii. Increased control by top management over outcomes