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Exam 15: Transfer Pricing

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Question 51

Multiple Choice

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Which of the following is not true about the formal management control system?

A) Includes procedures.
B) Includes explicit rules.
C) Includes shared values.
D) Includes incentive plans.
E) Includes performance measures.

F) A) and D)
G) C) and D)

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Question 52

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Some companies design their management control system around the concept of the balanced scorecard.

A) True
B) False

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Question 53

Multiple Choice

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The manager is accountable for cost only in which of the following responsibility centers?

Transfer prices based on full cost can lead to ________.

Which of the following methods includes a markup,or profit margin,that represents a return on subunit investment?

How do managers use information to design management control systems?

Gravel and Sand Corporation has two divisions,Refining and Production.The company's primary product is Quick-dry Cement Mix.Each division's costs are provided below: The Refining Division has been operating at a capacity of 42,000 bags a day and usually purchases 25,750 from the Production Division and 16,250 bags of cement mix from other suppliers at $62 per bag. Required Based on the provided information,what is the transfer price per bag from the Production Division to the Refining Division,assuming the method used to place a value on each bag of cement mix is 190% of variable costs? Compute the transfer price per bag from the Production Division to the Refining Division,assuming the method used to place a value on each bag of cement mix is 115% of full costs.Assume 230 bags are transformed from the Production Division to the Refining Division for a transfer price of $20 per bag.The Refining Division sells the 230 bags at a price of $105 each to customers.What is the operating income of both divisions together?

Can a manager directly reward and observe effort?

Dual pricing is not widely used in practice even though it reduces the goal congruence associated with a pure cost-based transfer-pricing method.

Which of the following is not true about effective management control?

Decentralization speeds decision making,creating a competitive advantage over centralized organizations.

Surveys of U.S.and European companies report that the decisions made most frequently at the decentralized level are related to product mix and product advertising.

Deciding whether a current market price is a distress price is often difficult.

The managerial accountant at Mega Petroleum reported the following information.Recall that the contract price of $75 per barrel of crude oil is based on market price in Chicago.The market price per barrel of crude oil supplied to the refining division is $90.The managerial accountant reported the following information.The market price per barrel of gasoline sold to external parties is $180. Required Compute Mega Petroleum's total operating income from purchasing,transporting,and refining 100 barrels of crude oil and selling the 50 barrels of gasoline.

Which of the following is not true about Section 482 of the U.S.Internal Revenue code?

Which of the cost scenarios listed below would managers choose to use when they do not consider full costs in cost-based transfer methods?

In markets that are not perfectly competitive,companies can increase capacity utilization only by decreasing prices.

In the ________ method,the eventual transfer price results from a bargaining process between the selling and buying subunits.

Which transfer-pricing method's market may not exist,or may be imperfect or in distress?

Which of the following is not a benefit of decentralization?