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

Question 1

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

Answer 1

True

Question 2

Suboptimization occurs when a manager of a cost center focuses on the goals of the cost center rather than on the goals of the organization as a whole.

Answer 2

True

Question 3

When management by exception is employed,both favorable and unfavorable variances should be investigated.

Answer 3

True

Question 4

Decentralization means that a unit manager has the authority to make all decisions concerning that specific unit.

Question 5

Decentralization is a transfer of authority from the bottom to the top of an organization.

Question 6

Decentralization can lead to greater job enrichment and satisfaction.

Question 7

The manager of an investment center is responsible for generating revenue as well as controlling expenses.

Question 8

Decentralization reduces the need for effective communication among an organization's departments.

Question 9

A manager of a cost center is evaluated solely on the basis of how well costs are controlled.

Question 10

When management by exception is employed,favorable variances should not be investigated.

Question 11

The manager of a profit center has the ability to set selling prices.

Question 12

A profit center is typically an independent organizational unit.

Question 13

An administrative department provides services that benefit other internal units of an organization.

Question 14

A responsibility accounting system should include the revenues and costs under a division manager's control.

Question 15

A responsibility accounting system should include all revenues and costs of a division.

Question 16

Decentralization is a transfer of authority from the top to the bottom of an organization.

Question 17

Decentralization increases the time required for decision-making.

Question 18

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

Question 19

Responsibility reports reflect the flow of information from operational units to top management.

Question 20

Responsibility reports at lower levels of the organization are less detailed than reports at the higher levels.

Question 21

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

Question 22

Market based transfer prices are most appropriate for customized high-volume and high-cost services.

Question 23

The most theoretically correct method of allocating service department costs is the algebraic method.

Question 24

One of the main factors to consider when using a cost-based transfer price is whether to use actual or standard costs.

Question 25

Negotiated transfer prices are most appropriate for low cost and low volume services.

Question 26

The most straight-forward method of assigning service department costs to revenue-producing areas is the direct method.

Question 27

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.

Question 28

Cost-based transfer prices are most effective for common high-cost and high-volume standardized services.

Question 29

Market based transfer prices are most effective for common high-cost and high-volume standardized services.

Question 30

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

Question 31

An administrative department provides services that benefit the entire organization.

Question 32

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

Question 33

When using a market-based transfer price,a decision must be made how price disputes will be handled.

Question 34

The direct method of service department cost allocation allows a partial recognition of reciprocal relationships among service departments before assigning costs to revenue-producing areas.

Question 35

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

Question 36

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.

Question 37

Cost based transfer prices are most appropriate for low cost and low volume services.

Question 38

Negotiated transfer prices are most appropriate for customized high-volume and high-cost services.

Question 39

A service department provides services that benefit other internal units of an organization.

Question 40

When using a negotiated transfer price,a determination must be made if comparable substitutes are available externally.

Question 41

In a decentralized company in which divisions may buy goods from one another,the transfer pricing system should be designed primarily to

A)increase the consolidated value of inventory.
B)allow division managers to buy from outsiders.
C)minimize the degree of autonomy of division managers.
D)aid in the appraisal and motivation of managerial performance.

Question 42

An organizational unit that performs management activities,such as personnel services,that benefit the entire organization is referred to as a(n)________________________________________.

Question 43

The accounting practices that are practiced by a decentralized organization are referred to as ___________________________________.

Question 44

A responsibility center whose manager is responsible for generating revenues and controlling expenses is referred to as a ______________________________.

Question 45

A situation in which managers pursue goals and objectives that are in the best interests of a particular segment rather than in the best interests of the organization as a whole is referred to as ____________________.

Question 46

Which of the following is more characteristic of a decentralized than a centralized business structure?

A)The firm's environment is stable.
B)There is little confidence in lower-level management to make decisions.
C)The firm grows very quickly.
D)The firm is relatively small.

Question 47

Costs of decentralization include all of the following except

A)more elaborate accounting control systems.
B)potential costs of poor decisions.
C)additional training costs.
D)slow response time to changes in local conditions.

Question 48

The transfer of authority,responsibility,and decision-making rights from the top to the bottom of an organization is referred to as ____________________.

Question 49

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

Question 50

Transfer pricing is primarily incurred in

A)foreign corporations exporting their products.
B)decentralized organizations.
C)multinational corporations headquartered in the U.S.
D)closely held corporations.

Question 51

An organizational unit that is responsible for the generation of revenues and has no control over selling prices or costs is referred to as a ______________________________.

Question 52

A responsibility center in which a manger has only the authority to control cost is referred to as a(n)_________________________.

Question 53

A binding contract between a company and one or more national taxing authorities that provides the details of how transfer prices will be set is referred to as a(n)_____________________________________________.

Question 54

An organizational unit whose manager is solely responsible for generating revenues is referred to as a ______________________________.

Question 55

An organizational unit whose manager is responsible for acquiring,using,and disposing of assets in order to maximize return on assets is referred to as a(n)______________________________.

Question 56

Three types of transfer prices are _________________________,_________________________,and ____________________.

Question 57

In a decentralized organization,the cost objective is referred to as a ______________________________.

Question 58

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

Question 59

An organizational unit that provides specific tasks for other internal units is referred to as a(n)______________________________.

Question 60

When the majority of authority is maintained by top management personnel,the organization is said to be

A)centralized.
B)decentralized.
C)composed of cost centers.
D)engaged in transfer pricing activities.

Question 61

The most valid reason for using something other than a full-cost-based transfer price between units of a company is because a full-cost price

A)is typically more costly to implement.
B)does not ensure the control of costs of a supplying unit.
C)is not available unless market-based prices are available.
D)does not reflect the excess capacity of the supplying unit.

Question 62

When used for performance evaluation,periodic internal reports based on a responsibility accounting system should not

A)be related to the organization chart.
B)include allocated fixed overhead.
C)include variances between actual and budgeted controllable costs.
D)distinguish between controllable and noncontrollable costs.

Question 63

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

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 64

To avoid waste and maximize efficiency when transferring products among divisions in a competitive economy,a large diversified corporation should base transfer prices on

A)variable cost.
B)market price.
C)full cost.
D)production cost.

Question 65

As the internal transfer price is increased,

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 66

Performance evaluation measures in an organization

A)affect the motivation of subunit managers to transact with one another.
B)always promote goal congruence.
C)are less motivating to managers than overall organizational goals.
D)must be the same for all managers to eliminate suboptimization.

Question 67

The minimum potential transfer price is determined by

A)incremental costs in the selling division.
B)the lowest outside price for the good.
C)the extent of idle capacity in the buying division.
D)negotiations between the buying and selling division.

Question 68

What term identifies an accounting system in which the operations of the business are broken down into reportable segments,and the control function of a foreperson,sales manager,or supervisor is emphasized?

A)responsibility accounting
B)operations-research accounting
C)control accounting
D)budgetary accounting

Question 69

A transfer pricing system is also known as

A)investment center accounting.
B)a revenue allocation system.
C)responsibility accounting.
D)a charge-back system.

Question 70

A management decision may be beneficial for a given profit center,but not for the entire company.From the overall company viewpoint,this decision would lead to

A)goal congruence.
B)centralization.
C)suboptimization.
D)maximization.

Question 71

The maximum of the transfer price negotiation range is

A)determined by the buying division.
B)set by the selling division.
C)influenced only by internal cost factors.
D)negotiated by the buying and selling division.

Question 72

The presence of idle capacity in the selling division may increase

A)the incremental costs of production in the selling division.
B)the market price for the good.
C)the price that a buying division is willing to pay on an internal transfer.
D)a negotiated transfer price.

Question 73

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

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

Question 74

Which of the following is a consistently desirable characteristic in a transfer pricing system?

A)system is very complex to be the most fair to the buying and selling units
B)effect on subunit performance measures is not easily determined
C)system should reflect organizational goals
D)transfer price remains constant for a period of at least two years

Question 75

If a division is set up as an autonomous profit center,then goods should not be transferred

A)in at a cost-based transfer price.
B)out at a cost-based transfer price.
C)in or out at cost-based transfer price.
D)to other divisions in the same company.

Question 76

A major benefit of cost-based transfers is that

A)it is easy to agree on a definition of cost.
B)costs can be measured accurately.
C)opportunity costs can be included.
D)they provide incentives to control costs.

Question 77

In a responsibility accounting system,costs are classified into categories on the basis of

A)fixed and variable costs.
B)prime and overhead costs.
C)administrative and nonadministrative costs.
D)controllable and noncontrollable costs.

Question 78

In evaluating the performance of a profit center manager,he/she should be evaluated on

A)all revenues and costs that can be traced directly to the unit.
B)all revenues and costs under his/her control.
C)the variable costs and the revenues of the unit.
D)the same costs and revenues on which the unit is evaluated.

Question 79

A ____ is a document that reflects the revenues and/or costs that are under the control of a particular manager.

A)quality audit report
B)responsibility report
C)performance evaluation report
D)project report

Question 80

The cost object under the control of a manager is called a(n)____ center.

A)cost
B)revenue
C)responsibility
D)investment