Question 1

With two autonomous division managers,the price of goods transferred between the divisions needs to be approved by

Accepted Answer

A) corporate management. 
B) both divisional managers. 
C) both divisional managers and corporate management. 
D) corporate management and the manager of the buying division.

Question 2

To identify costs that relate to a specific product,an allocation base should be chosen that

Accepted Answer

A) does not have a cause-and-effect relationship. 
B) has a cause-and-effect relationship. 
C) considers variable costs but not fixed costs. 
D) considers direct material and direct labor but not manufacturing overheaD.

Question 3

When using a negotiated transfer price,a decision must be made which market price to use.

Accepted Answer

A) True 
 B)False

Question 4

In computing a transfer price,the minimum price should be no lower than the incremental costs associated with the goods plus the opportunity cost of the facilities used.

Accepted Answer

A) True 
 B)False

Question 5

Bradley Corporation
Bradley Corporation has three production departments A,B,andC.Bradley Corporation also has two service departments,Administration and Personnel.Administration costs are allocated based on value of assets employed,and Personnel costs are allocated based on number of employees.Assume that Administration provides more service to the other departments than does the Personnel Department.
$\begin{array}{llcc}
\underline{\text { Dept. }} &\underline{ \text { DirectCosts } }&\underline{ \text { Employees } }&\underline{ \text { Asset Value }} \
\text { Admin. } & \$ 900,000 & 25 &\$ 450,000 \
\text { Personnel } & 350,000 & 10 & 600,000 \
\text { A } & 700,000 & 15 & 300,000 \
\text { B } & 200,000 & 5 & 150,000\
\text { C } & 250,000 & 10 & 800,000
\end{array}$

Refer to Bradley Corporation.Using the step method,what amount of Administration costs is allocated to Personnel (round to the nearest dollar)?

Accepted Answer

A) $72,973 
B) $291,892 
C) $145,946 
D) $389,189

Question 6

In computing a transfer price,the maximum price should be no higher than the lowest market price at which the buying segment can obtain the good or service externally.

Accepted Answer

A) True 
 B)False

Question 7

St.Paul Medical Clinic has two service departments: Building Operations and Utilities,and three operating departments: Rehabilitation,Preventative Medicine,and Geriatrics.St.Paul Medical Clinic allocates the cost of Building Operations on the basis of square footage and Utilities on the basis of patient days.Fixed and variable costs are not separated. Budgeted operating data for the previous year are presented below:

	Service Building Operations	Departments Utilities	Operating Rehabilitation	Departments Preventative Medicine	Geriatrics
Budgeted costs before allocation	$20,000	$10,000	$90,000	$60,000	$100,000
Square Footage	1,000	4,000	6,000	18,000	12,000
Patient Days	-	-	5,500	7,700	8,800

Required: a. Prepare a schedule to allocate service department costs to operating departments by the chrect method (round all dollar amounts to the ne arest whole dollar). b. Prepare a schechule to allocate service department costs to operating departments by the step method, allocating Building Operations first (round all amounts to the nearest whole dollar).

Accepted Answer

The answer of St.Paul Medical Clinic has two service departments:...

Question 8

When one responsibility center uses a transfer price to transfer goods or services to another responsibility center a ___________________________________ is created.

Accepted Answer

The answer of When one responsibility center uses a transfer...

Question 9

Transfer prices can be used to promote goal congruence among operating segments of an organization.

Accepted Answer

A) True 
 B)False

Question 10

Terrell Corporation
Terrell Corporation produces various products used in the construction industry.The Plumbing Division produces and sells 100,000 copper fittings each month.Relevant information for last month follows:
$\begin{array}{lc}
\text { Total sales(all external) } & \$ 250,00 \
\text { Expenses(all on a urit base): } & \
\text { Variable manufacturing } &\$ 0.50 \
\text { Fixed manufacturing } & .25 \
\text { Variable selling } & .30 \
\text { Fixed selling } & .40 \
\text { Variable G\&A } &.15\
\text { Fixed G\&A } & \underline{.50}\
\text { Total} &\underline{ \$ 2.10}
\end{array}$

Top-level managers are trying to determine how a transfer price can be set on a transfer of 10,000 of the copper fittings from the Plumbing Division to the Bathroom Products Division.
Refer to Terrell Corporation.A transfer price based on market price would be set at ____ per unit.

Accepted Answer

A) $2.10 
B) $2.50 
C) $1.60 
D) $2.25

Question 11

Terrell Corporation
Terrell Corporation produces various products used in the construction industry.The Plumbing Division produces and sells 100,000 copper fittings each month.Relevant information for last month follows:
$\begin{array}{lc}
\text { Total sales(all external) } & \$ 250,00 \
\text { Expenses(all on a urit base): } & \
\text { Variable manufacturing } &\$ 0.50 \
\text { Fixed manufacturing } & .25 \
\text { Variable selling } & .30 \
\text { Fixed selling } & .40 \
\text { Variable G\&A } &.15\
\text { Fixed G\&A } & \underline{.50}\
\text { Total} &\underline{ \$ 2.10}
\end{array}$

Top-level managers are trying to determine how a transfer price can be set on a transfer of 10,000 of the copper fittings from the Plumbing Division to the Bathroom Products Division.
Refer to Terrell Corporation.A transfer price based on variable cost will be set at ____ per unit.

Accepted Answer

A) $0.50 
B) $0.65 
C) $0.95 
D) $1.10

Question 12

An internal reconciliation account is not required for internal transfers based on

Accepted Answer

A) market value. 
B) dual prices. 
C) negotiated prices. 
D) cost.

Question 13

Bradley Corporation
Bradley Corporation has three production departments A,B,and C.Bradley Corporation also has two service departments,Administration and Personnel.Administration costs are allocated based on value of assets employed,and Personnel costs are allocated based on number of employees.Assume that Administration provides more service to the other departments than does the Personnel Department.
$\begin{array}{llcc}
\underline{\text { Dept. }} &\underline{ \text { DirectCosts } }&\underline{ \text { Employees } }&\underline{ \text { Asset Value }} \
\text { Admin. } & \$ 900,000 & 25 &\$ 450,000 \
\text { Personnel } & 350,000 & 10 & 600,000 \
\text { A } & 700,000 & 15 & 300,000 \
\text { B } & 200,000 & 5 & 150,000\
\text { C } & 250,000 & 10 & 800,000
\end{array}$

Refer to Bradley Corporation.Assume that Administration costs have been allocated and the balance in Personnel is $860,000.What amount is allocated to A (round to the nearest dollar)?

Accepted Answer

A) $213,964 
B) $106,982 
C) $430,000 
D) $0

Question 14

Castle Homes Corporation
The Carpet Division of Castle Homes Corporation manufactures a single grade of residential grade carpeting.The division has the capacity to produce 500,000 square yards of carpet each year.Its current costs and revenues are shown here:
 Sales (400,000 square yards)                                $\$ 2,000,000$
Variable costs per square yard:
Production                                                             $ \$ 2.00 $
SG&A                                                                      1.00
Fixed costs per square yard (based on 500,000 yard capacity)
 Production                                                              $ \$ 0.50 $
SG&A                                                                      1.00

The Housing Division currently purchases 40,000 yards of carpeting (of the grade produced by the Carpet Division)each year at a cost of $6.50 per square yard from an outside vendor.
Refer to Castle Homes Corporation.If the autonomous Housing and Carpet Divisions enter negotiations on the internal transfer of 40,000 square yards of carpeting,what is the Carpet Division's minimum price?

Accepted Answer

The answer of Castle Homes Corporation
The Carpet Division of Castle...

Question 15

Decentralization can result in a lack of goal congruence among departments.

Accepted Answer

A) True 
 B)False

Question 16

Why don't upper-level managers simply dictate transfer prices to divisional managers,and thereby avoid all the hassles and expense of the negotiations between them (divisional managers)?

Accepted Answer

The answer of Why don't upper-level managers simply dictate transfer...

Question 17

An advance pricing agreement can eliminate the possibility of double taxation on multinational exchanges of goods.

Accepted Answer

A) True 
 B)False

Question 18

The manager of a revenue center has the authority to establish selling prices of product.

Accepted Answer

A) True 
 B)False

Question 19

As the internal transfer price is increased,

Accepted Answer

A) overall corporate profits increase. 
B) profits in the buying division increase. 
C) profits in the selling division increase. 
D) profits in the selling division and the overall corporation increase.

Question 20

Indirect costs should be allocated for all of the following reasons except to

Accepted Answer

A) motivate managers. 
B) determine the full cost of a product. 
C) motivate general administration. 
D) compare alternatives for decision making.

Exam 13: Responsibility Accounting,support Department Allocations,and Transfer Pricing

With two autonomous division managers,the price of goods transferred between the divisions needs to be approved by

To identify costs that relate to a specific product,an allocation base should be chosen that

When using a negotiated transfer price,a decision must be made which market price to use.

In computing a transfer price,the minimum price should be no lower than the incremental costs associated with the goods plus the opportunity cost of the facilities used.

In computing a transfer price,the maximum price should be no higher than the lowest market price at which the buying segment can obtain the good or service externally.

When one responsibility center uses a transfer price to transfer goods or services to another responsibility center a ___________________________________ is created.

Transfer prices can be used to promote goal congruence among operating segments of an organization.

An internal reconciliation account is not required for internal transfers based on

Decentralization can result in a lack of goal congruence among departments.

Why don't upper-level managers simply dictate transfer prices to divisional managers,and thereby avoid all the hassles and expense of the negotiations between them (divisional managers)?

An advance pricing agreement can eliminate the possibility of double taxation on multinational exchanges of goods.

The manager of a revenue center has the authority to establish selling prices of product.

As the internal transfer price is increased,

Indirect costs should be allocated for all of the following reasons except to