Deck 22: Management Control Systems, transfer Pricing, and Multinational Considerations

Question 1

The management accounting system is an informal management control system which provide information about the firm's costs,revenues,and income.

Answer 1

False
Explanation:The management accounting systems is a formal management control system which provide information about the firm's costs,revenues,and income.

Question 2

Effort in terms of management control systems is defined in terms of physical exertion such as a worker producing at a faster rate.

Answer 2

False
Explanation:Effort goes beyond physical exertion and includes both physical and mental actions.

Question 3

Effective management control systems should also motivate managers and other employees.

Answer 3

True

Question 4

An organization should design its management control system independently of its strategies,so that the system is not affected by change of strategies in future.

Question 5

Effort refers to physical exertion,such as a worker producing at a faster rate,but excludes non-physical aspects like acumen and diligence of a worker.

Question 6

If a computer manufacturer used its common stock price as a Balanced Scorecard control measure,it would be utilizing which of the following?

A)an external measure
B)customer related measure
C)internal business process measure
D)learning and growth measure

Question 7

The human resources systems is a part of the formal management control systems of an organization.

Question 8

Goal congruence exists when individuals work toward achieving one goal,and groups work toward achieving a different goal.

Question 9

Line managers supervising individual refineries are concerned with ________.

A)obtaining information about the firm's opportunity costs
B)obtaining information about the firm's sunk costs
C)obtaining information about the firm's equipment downtime and product quality
D)obtaining information about customer satisfaction and market share

Question 10

Management control systems is designed only for top level managers and is not applicable to line managers.

Question 11

Which of the following is a characteristic of a management control system?

A)It gathers key information that aids in the process of making decisions
B)It encourages short-term profit planning
C)Helps managers to act rapidly and with autonomy
D)It deals with coordinating planning across the organization and is not concerned with behavioral aspects of managing

Question 12

Which of the following is a part of the formal management control system?

A)mutual commitments among the members of the organization
B)the accounting information system provides metrics about costs,revenues,and contribution margins
C)shared values and loyalties among the members of the organization
D)general understanding about acceptable behavior for managers

Question 13

The formal management control system includes shared values,loyalties,and mutual commitments among members of the company,company culture,and norms about acceptable behavior for managers and other employees.

Question 14

Management control systems utilize information gathered within a company and from external sources so as to aid management with their planning and control decision making.

Question 15

Management control systems should be designed to support the organizational responsibilities of individual managers.

Question 16

In a management control system,which of the following is described as the extent to which managers strive or endeavor in order to achieve a goal?

A)Efficiency
B)Effectiveness
C)Effort
D)Variance

Question 17

The formal management control system includes the shared values,loyalties,and mutual commitments among members of the organization.

Question 18

A well-designed management control system uses information from ________.

A)internal sources only as they are the most reliable sources of information
B)external sources only as they are more dynamic and future oriented
C)both internal and external sources as a wide range of information is required
D)external sources only as they are the most reliable sources of information

Question 19

Which of the following is true of goal congruence?

A)It exists when the management's strategy is in line with the shareholders' requirements.
B)It exists when individuals and groups work toward achieving the organization's goals.
C)It exists when both internal and external stakeholders of an organization have similar goals.
D)It exists when an organization's goals are in line with the social acceptability of organizational goals.

Question 20

Which of the following would be considered an example of an element of an informal control system?

A)procedures developed by first level managers to help guide staff in their daily work
B)a policy that requires all employees to take at least two weeks of vacation each year
C)Shared values within an organization's culture
D)the master budget

Question 21

Incongruent decision making occurs when individuals and groups work toward achieving the organization's goals even if departmental performance is adversely affected.

Question 22

Which of the following is an advantage of decentralization?

A)leads to gains from rapid decision making by subunit managers
B)focuses manager's attention on the organization as a whole
C)does not result in a duplication of activities
D)reduces the cost of gathering information

Question 23

Which of the following is an advantage of decentralization?

A)It assists management development and learning.
B)It focuses managers' attention on the organization as a whole.
C)It does not result in a duplication of activities.
D)It encourages suboptimal decision making.

Question 24

Decentralization in multinational companies may lead to lack of control.

Question 25

Which of the following is a benefit of decentralization?

A)It creates greater responsiveness to local needs.
B)It helps in rasing capital at a local level.
C)It relieves top managers of accountability.
D)It sharpens the focus of subunits and broadens the reach of top management

Question 26

In a profit center,the manager is accountable for investments,revenues,and costs.

Question 27

The labels profit center and cost center are dependent on the degree of centralization or decentralization in a company.

Question 28

Which of the following is a drawback of decentralizing a multinational company?

A)It may lead to increased exchange rate risk.
B)It may result in lack of control and results in increasing risk.
C)It creates less responsiveness to the needs of a subunit's customers,suppliers,and employees.
D)It may lead to an increase in bureaucracy.

Question 29

What is goal congruence?

Question 30

________ occurs when a decision's benefits for one subunit is more than offset by the costs to the organization as a whole.

A)Suboptimal decision making
B)Independent decision making
C)Congruent decision making
D)Departmental decision making

Question 31

Which of the following statements is true of decentralization?

A)A decentralized structure does not empower employees to handle customer complaints directly.
B)A decentralized structure forces top management to lose some control over the organization.
C)Decentralization slows responsiveness to local needs for decision making.
D)A decentralized structure only delegates recurring and structured decisions to lower levels.

Question 32

For each of the following Balanced Scorecard measures,identify which of the four perspectives (Financial,Customer,Internal Business Process,or Learning and Growth)the measure best represents.

Question 33

For each of the following activities,characteristics,and applications,identify whether they can be found in a centralized organization,a decentralized organization,or both types of organizations.

Question 34

Surveys indicate that decisions made most frequently at the corporate level are related to sources of supplies and products to manufacture.

Question 35

Which of the following is a responsibility center to measure the revenues and costs of subunits in centralized or decentralized companies?

A)investment center
B)environmental center
C)exchange policy center
D)taxation rebate center

Question 36

Decisions regarding sources of long-term financing are best made at subunit level as the subunit has local knowledge and can leverage it in negotiations.

Question 37

An investment center is always a decentralized subunit.

Question 38

Which of the following is not a benefit of decentralization?

A)Creates competition among subunit managers.
B)Sharpens the focus of subunit managers.
C)Assists in development and learning.
D)creates greater responsiveness to the needs of customers and suppliers.

Question 39

In decentralized organizations,a manager might look to further the success of their subunit to the detriment of other subunits.Such behavior would be from which of the following results of decentralization?

A)duplication of output
B)gains from raid decision making
C)unhealthy competition
D)broadening the reach of top management

Question 40

"Management control systems consist of formal and informal control systems." Briefly explain the formal and informal management systems and enlist their components.

Question 41

Axelia Corporation has two divisions,Refining and Extraction.The company's primary product is Luboil Oil.Each division's costs are provided below:

The Refining Division has been operating at a capacity of 40,200 barrels a day and usually purchases 25,100 barrels of oil from the Extraction Division and 15,600 barrels from other suppliers at $58 per barrel.
What is the transfer price per barrel from the Extraction Division to the Refining Division,assuming the method used to place a value on each barrel of oil is 180% of variable costs?

A)$25.20
B)$34.20
C)$77.00
D)$138.60

Question 42

Which of the following best describes a transfer price?

A)It is the price charged by an organization when it transfer goods to another organization in lieu of services provided by it.
B)It is the price that is to be used while calculating revenue from sales to customers for tax purposes.
C)It is the price that is charged by a department of an organization when it sells its goods to its competitors.
D)It is the price one subunit charges for a product or service supplied to another subunit of the same organization.

Question 43

The costs used in cost-based transfer prices ________.

A)are actual costs
B)are budgeted costs
C)can either be actual or budgeted costs
D)are lower than the market-based transfer prices

Question 44

Timekeeper Corporation has two divisions,Distribution and Manufacturing.The company's primary product is high-end watches.Each division's costs are provided below:

The Distribution Division has been operating at a capacity of 4,009,000 units a week and usually purchases 2,004,500 units from the Manufacturing Division and 2,004,500 units from other suppliers at $10.00 per unit.
What is the transfer price per watch from the Manufacturing Division to the Distribution Division,assuming the method used to place a value on each watch is 170% of variable costs?

A)$1.87
B)$3.18
C)$3.19
D)$8.13

Question 45

Transfer-pricing systems enable managers to focus on maximizing the performance of their subunits.

Question 46

The product or service transferred between subunits of an organization is called an intermediate product.

Question 47

What is decentralization and what are its benefits?

Question 48

Negotiated transfer prices are often employed when ________.

A)market prices are stable
B)market prices are volatile
C)market prices change by a regular percentage each year
D)goal congruence is not a major objective

Question 49

A product may be passed from one subunit to another subunit in the same organization.The product is known as a(n)________.

A)interdepartmental product
B)intermediate product
C)subunit product
D)transfer product

Question 50

Why is decentralization costly?

Question 51

The president of Silicon Company has just returned from a week of professional development courses and is very excited that she will not have to change the organization from a centralized structure to a decentralized structure just to have responsibility centers.However,she is somewhat confused about how responsibility centers relate to centralized organizations where a few managers have most of the authority.
Required:
Explain how a centralized organization might allow for responsibility centers.

Question 52

Which of the following is true of hybrid transfer prices?

A)The cost used in hybrid transfer prices is always the actual cost.
B)The cost used in hybrid transfer prices is always the budgeted cost.
C)They take into account both cost and market information.
D)They are less popular in manufacturing industry.

Question 53

A transfer-pricing method leads to goal congruence when ________.

A)there is a price difference in different markets due to market inefficiencies
B)managers do no act for their own best interest and work for the long-term best interest of the manager's subunit
C)managers act in their own best interest and the decision is in the long-term best interest of the company
D)there is a low degree of centralization

Question 54

Which of the following is true of transfer pricing?

A)It creates costs for the selling subunit.
B)It creates revenues for the buying subunit.
C)It helps top managers evaluate the performance of individual subunits.
D)It makes managers' information-processing and decision-making tasks difficult.

Question 55

The transfer price creates revenues for the selling subunit and costs for the buying subunit affecting each subunit's operating income.

Question 56

Axelia Corporation has two divisions,Refining and Extraction.The company's primary product is Luboil Oil.Each division's costs are provided below:

The Refining Division has been operating at a capacity of 40,300 barrels a day and usually purchases 25,400 barrels of oil from the Extraction Division and 15,100 barrels from other suppliers at $64 per barrel.
What is the transfer price per barrel from the Extraction Division to the Refining Division,assuming the method used to place a value on each barrel of oil is 120% of full costs?

A)$18.00
B)$21.60
C)$56.00
D)$100.80

Question 57

Axelia Corporation has two divisions,Refining and Extraction.The company's primary product is Luboil Oil.Each division's costs are provided below:

The Refining Division has been operating at a capacity of 40,900 barrels a day and usually purchases 25,600 barrels of oil from the Extraction Division and 15,400 barrels from other suppliers at $64 per barrel.
Assume 260 barrels are transferred from the Extraction Division to the Refining Division for a transfer price of $26 per barrel.The Refining Division sells the 260 barrels at a price of $220 each to customers.What is the operating income of both divisions together?

A)$13,520
B)$34,060
C)$16,380
D)$50,440

Question 58

What are transfer prices and what are its criteria?

Question 59

Timekeeper Corporation has two divisions,Distribution and Manufacturing.The company's primary product is high-end watches.Each division's costs are provided below:

The Distribution Division has been operating at a capacity of 4,010,000 units a week and usually purchases 2,005,000 units from the Manufacturing Division and 2,005,000 units from other suppliers at $15.00 per unit.
What is the transfer price per watch from the Manufacturing Division to the Distribution Division,assuming the method used to place a value on each transfer is 125% of full costs?

A)$11.49
B)$14.36
C)$15.00
D)$19.25

Question 60

To reduce the excessive focus of subunit managers on their own subunits,many companies compensate subunit managers on the basis of ________.

A)both the operating income earned by their respective subunits and the company as a whole
B)both the investing income earned by their respective subunits and the company as a whole
C)only the investing income earned by their respective subunits
D)both the net income and earned by their respective subunits and the company as a whole

Question 61

Branded Shoe Company manufactures only one type of shoe and has two divisions,the Stitching Division and the Polishing Division.The Stitching Division manufactures shoes for the Polishing Division,which completes the shoes and sells them to retailers.The Stitching Division "sells" shoes to the Polishing Division.The market price for the Polishing Division to purchase a pair of shoes is $51.(Ignore changes in inventory. )The fixed costs for the Stitching Division are assumed to be the same over the range of 40,000-110,000 units.The fixed costs for the Polishing Division are assumed to be $20 per pair at 110,000 units.


Assume the transfer price for a pair of shoes is 185% of total costs of the Stitching Division and 40,000 of shoes are produced and transferred to the Polishing Division.The Stitching Division's operating income is ________.

A)$1,632,000
B)$1,120,000
C)$1,400,000
D)$1,320,000

Question 62

Transfer prices do not affect managers whose compensation is directly dependent on an organization's operating income because transfer prices affect only divisional profits and not the organization's profit.

Question 63

Branded Shoe Company manufactures only one type of shoe and has two divisions,the Stitching Division and the Polishing Division.The Stitching Division manufactures shoes for the Polishing Division,which completes the shoes and sells them to retailers.The Stitching Division "sells" shoes to the Polishing Division.The market price for the Polishing Division to purchase a pair of shoes is $50.(Ignore changes in inventory. )The fixed costs for the Stitching Division are assumed to be the same over the range of 40,000-103,000 units.The fixed costs for the Polishing Division are assumed to be $22 per pair at 103,000 units.


Calculate and compare the difference in overall corporate net income of Branded Shoe Company between Scenario A and Scenario B if the Assembly Division sells 103,000 pairs of shoes for $120 per pair to customers.

A)$1,751,000 more net income under Scenario A
B)$1,751,000 less net income using Scenario B
C)$103,000 less net income using Scenario A.
D)The net income would be the same under both scenarios.

Question 64

Division A sells ground veal internally to Division B,which in turn,produces veal burgers that sell for $19 per pound.Division A incurs costs of $1.25 per pound while Division B incurs additional costs of $6.50 per pound.
Which of the following formulas correctly reflects the company's operating income per pound?

A)$19 - ($1.25 + $6.50)= $11.25
B)$19 - ($3.25 + $6.50)= $9.25
C)$19 - ($1.25 + $9.75)= $8.00
D)$19 - ($0.75 + $3.25 + $3.25)= $5.50

Question 65

Timekeeper Corporation has two divisions,Distribution and Manufacturing.The company's primary product is high-end watches.Each division's costs are provided below:

The Distribution Division has been operating at a capacity of 4,009,000 units a week and usually purchases 2,004,500 units from the Manufacturing Division and 2,004,500 units from other suppliers at $13.00 per unit.
Assume 110,000 units are transferred from the Manufacturing Division to the Distribution Division for a transfer price of $8.00 per unit.The Distribution Division sells the 110,000 units at a price of $18 each to customers.What is the operating income of both divisions together?

A)$347,600
B)$392,150
C)$997,700
D)$634,700

Question 66

Plish Company manufactures only one type of washing machine and has two divisions,the Compressor Division,and the Fabrication Division.The Compressor Division manufactures compressors for the Fabrication Division,which completes the washing machine and sells it to retailers.The Compressor Division "sells" compressors to the Fabrication Division.The market price for the Fabrication Division to purchase a compressor is $56.00.(Ignore changes in inventory. )The fixed costs for the Compressor Division are assumed to be the same over the range of 11,000-16,000 units.The fixed costs for the Fabrication Division are assumed to be $8.50 per unit at 16,000 units.


What is the transfer price per compressor from the Compressor Division to the Fabrication Division if the method used to place a value on each compressor is 115% of variable costs?

A)$28.50
B)$41.98
C)$43.00
D)$46.50

Question 67

The choice of a transfer-pricing method has minimal effect on the allocation of company-wide operating income among divisions.

Question 68

Plish Company manufactures only one type of washing machine and has two divisions,the Compressor Division,and the Fabrication Division.The Compressor Division manufactures compressors for the Fabrication Division,which completes the washing machine and sells it to retailers.The Compressor Division "sells" compressors to the Fabrication Division.The market price for the Fabrication Division to purchase a compressor is $60.00.(Ignore changes in inventory. )The fixed costs for the Compressor Division are assumed to be the same over the range of 13,000-18,000 units.The fixed costs for the Fabrication Division are assumed to be $11.00 per unit at 18,000 units.


If the Fabrication Division sells 1000 air conditioners at a price of $475.00 per washing machine to customers,what is the operating income of both divisions together?

A)$167,500
B)$169,500
C)$151,000
D)$147,000

Question 69

Division A sells ground veal internally to Division B,which in turn,produces veal burgers that sell for $12 per pound.Division A incurs costs of $5.25 per pound while Division B incurs additional costs of $11.50 per pound.
What is Division A's operating income per burger,assuming the transfer price of the ground veal is set at $7.00 per burger?

A)$1.75
B)$2.25
C)$8.75
D)$4.50

Question 70

Plish Company manufactures only one type of washing machine and has two divisions,the Compressor Division,and the Fabrication Division.The Compressor Division manufactures compressors for the Fabrication Division,which completes the washing machine and sells it to retailers.The Compressor Division "sells" compressors to the Fabrication Division.The market price for the Fabrication Division to purchase a compressor is $42.00.(Ignore changes in inventory. )The fixed costs for the Compressor Division are assumed to be the same over the range of 12,000-17,000 units.The fixed costs for the Fabrication Division are assumed to be $8.00 per unit at 17,000 units.


Assume the transfer price for a compressor is 145% of total costs of the Compressor Division and 1500 of the compressors are produced and transferred to the Fabrication Division.The Compressor Division's operating income is ________.

A)$128,325
B)$39,825
C)$42,188
D)$29,400

Question 71

Plish Company manufactures only one type of washing machine and has two divisions,the Compressor Division,and the Fabrication Division.The Compressor Division manufactures compressors for the Fabrication Division,which completes the washing machine and sells it to retailers.The Compressor Division "sells" compressors to the Fabrication Division.The market price for the Fabrication Division to purchase a compressor is $60.00.(Ignore changes in inventory. )The fixed costs for the Compressor Division are assumed to be the same over the range of 13,000-18,000 units.The fixed costs for the Fabrication Division are assumed to be $7.50 per unit at 18,000 units.


What is the market-based transfer price per compressor from the Compressor Division to the Fabrication Division?

A)$16.50
B)$33.00
C)$40.50
D)$60.00

Question 72

Branded Shoe Company manufactures only one type of shoe and has two divisions,the Stitching Division and the Polishing Division.The Stitching Division manufactures shoes for the Polishing Division,which completes the shoes and sells them to retailers.The Stitching Division "sells" shoes to the Polishing Division.The market price for the Polishing Division to purchase a pair of shoes is $52.(Ignore changes in inventory. )The fixed costs for the Stitching Division are assumed to be the same over the range of 40,000-103,000 units.The fixed costs for the Polishing Division are assumed to be $24 per pair at 103,000 units.


What is the transfer price per pair of shoes from the Stitching Division to the Polishing Division if the method used to place a value on each pair of shoes is 175% of variable costs?

A)$36.75
B)$66.50
C)$94.50
D)$7.00

Question 73

Branded Shoe Company manufactures only one type of shoe and has two divisions,the Stitching Division and the Polishing Division.The Stitching Division manufactures shoes for the Polishing Division,which completes the shoes and sells them to retailers.The Stitching Division "sells" shoes to the Polishing Division.The market price for the Polishing Division to purchase a pair of shoes is $46.(Ignore changes in inventory. )The fixed costs for the Stitching Division are assumed to be the same over the range of 40,000-101,000 units.The fixed costs for the Polishing Division are assumed to be $14 per pair at 101,000 units.


What is the transfer price per pair of shoes from the Stitching Division to the Polishing Division if the transfer price per pair of shoes is 125% of full costs?

A)$15.00
B)$27.50
C)$37.50
D)$45.00

Question 74

Hybrid transfer prices take into account both cost and market information.

Question 75

Plish Company manufactures only one type of washing machine and has two divisions,the Compressor Division,and the Fabrication Division.The Compressor Division manufactures compressors for the Fabrication Division,which completes the washing machine and sells it to retailers.The Compressor Division "sells" compressors to the Fabrication Division.The market price for the Fabrication Division to purchase a compressor is $60.00.(Ignore changes in inventory. )The fixed costs for the Compressor Division are assumed to be the same over the range of 8000-13,000 units.The fixed costs for the Fabrication Division are assumed to be $11.50 per unit at 13,000 units.


What is the transfer price per compressor from the Compressor Division to the Fabrication Division if the transfer price per compressor is 110% of full costs?

A)$19.80
B)$32.45
C)$47.30
D)$54.45

Question 76

Branded Shoe Company manufactures only one type of shoe and has two divisions,the Stitching Division and the Polishing Division.The Stitching Division manufactures shoes for the Polishing Division,which completes the shoes and sells them to retailers.The Stitching Division "sells" shoes to the Polishing Division.The market price for the Polishing Division to purchase a pair of shoes is $48.(Ignore changes in inventory. )The fixed costs for the Stitching Division are assumed to be the same over the range of 40,000-101,000 units.The fixed costs for the Polishing Division are assumed to be $17 per pair at 101,000 units.


What is the market-based transfer price per pair of shoes from the Stitching Division to the Polishing Division?

A)$23
B)$36
C)$48
D)$59

Question 77

Negotiated transfer prices are often employed when market prices are stable.

Question 78

The cost used in cost-based transfer prices can be actual cost or budgeted cost.

Question 79

Branded Shoe Company manufactures only one type of shoe and has two divisions,the Stitching Division and the Polishing Division.The Stitching Division manufactures shoes for the Polishing Division,which completes the shoes and sells them to retailers.The Stitching Division "sells" shoes to the Polishing Division.The market price for the Polishing Division to purchase a pair of shoes is $42.(Ignore changes in inventory. )The fixed costs for the Stitching Division are assumed to be the same over the range of 40,000-101,000 units.The fixed costs for the Polishing Division are assumed to be $23 per pair at 101,000 units.


If the Polishing Division sells 101,000 pairs of shoes at a price of $180 a pair to customers,what is the operating income of both divisions together?

A)$12,221,000
B)$9,595,000
C)$7,878,000
D)$6,363,000

Question 80

Hybrid transfer prices can be arrived at through negotiations.