Chap 12 in ra - otalsalesdividedbycapitalinvested.C.profitdividedbycapitalinvested. PDF

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otalsalesdividedbycapitalinvested.C.profitdividedbycapitalinvested....

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Chapter 12 Testbank Key 1. When managers within the various units of an organisation are committed to a ligning their goals with the goals set by top management, the result is: A. goal congruence 2. Responsibility accounting: A. fosters goal congruence B. involves using the various concepts and tools used by management accountant s for planning and control C. is used to measure the performance of units D. All of the given answers 3. The biggest challenge in making a decentralised organisation function effectively: D. obtaining goal congruence among the organisation's autonomous managers 4. Which of the following is not a benefit of decentralisation? A. Specialised information about the local markets B. Motivation C. Relief to upper-level management D. Narrow focus on the manager's own unit 5. Delegating decision making to lower-level managers, thereby enabling an organisat ion to react quickly to opportunities and problems as they arise, is a characteristic of: A. a decentralised organisation B. a centralised organisation C. a corporation D. responsibility accounting 6. What is a negative consequence of decentralisation? A. Narrow focus B. Services may be duplicated C. Suboptimal decisions may be made D. All of the given answers 7. Which of the following statements is false? A. Goal congruence is difficult to achieve because managers are often unaware of the effects of their decisions on the

B. The development of performance measures to evaluate a unit and its manager s will help achieve goal congruence C. People are naturally concerned with the performance of all units within the or ganisation D. Goal congruence can be achieved by having a reward system tied to a manage r's performance 8. Which of the following is not an example of a responsibility centre? A. Corporate centre B. Revenue centre C. Profit centre D. Investment centre 9. Which of the following managers is held responsible for only the costs incurre d in the unit? A. Cost centre manager B. Revenue centre manager C. Profit centre manager D. Investment centre manager 10. Which of the following managers is held accountable for the unit's profit and inve sted capital? A. Investment centre manager B. Revenue centre manager C. Profit centre manager D. Sales manager 11. Which of the following managers is held accountable for only the revenue attr ibuted to a unit? A. Cost centre manager B. Revenue centre manager C. Sales manager D. Investment centre manager 12. Which of the following managers is held accountable for the profit of the unit

A. Revenue centre manager B. Profit centre manager C. Investment centre manager D. Both B and C 13. A sales department manager is an example of a: A. cost centre manager B. revenue centre manager C. profit centre manager D. investment centre manager 14. An example of a profit centre is the: A. painting department B. sales department C. companyowned restaurant in a fast-food chain D. All of the given answers 15. The amount charged when one business unit sells goods or services to another bus iness unit is called: A. an opportunity cost B. a transfer price C. a standard variable cost D. a residual price 16. An opportunity cost can best be described as the: A. pricing of goods as per market trends B. direct expenses incurred in producing goods C. total difference in cost of production between two divisions D. the benefit that is foregone for one alternative in order to pursue another alter native 17. Fragrance Pty Ltd has two divisions: the Cologne Division and the Bottle Division . The company is decentralised and each division is evaluated as a profit centre. The B ottle Division produces bottles that can be used by the Cologne Division. The Bottle Division's variable manufacturing cost per unit is $2.00 and shipping costs are $0.10 p er unit. The Bottle Division's external sales price is $3.00 per unit. No shipping costs are incurred on sales to the Cologne Division. The Cologne Division can purchase sim ilar bottles in the external market for $2.50. The Bottle Division has sufficient capacit y to meet all external market demands in addition to meeting the demands of the Colo gne Division. Using the general rule, the minimum transfer price from the Bottle Divi sion to the Cologne Division would be: A. $2.00 B. $2.10

C. $2.50 D. $2.90 18. Assume the Bottle Division has no excess capacity and can sell everything produc ed externally. Using the general rule, the transfer price from the Bottle Division t o the Cologne Division would be: A. $2.10 B. $2.50 C. $2.90 D. $3.00 19.Assume the Bottle Division has no excess capacity and can sell everything produce d externally. What is the maximum amount Cologne Division would be willing to pay for the bottles? A. $2.00 B. $2.10 C. $2.50 D. $2.90 20. Which of the following statements about transfer prices is/are true? i. When the producing division has excess capacity and the external market is imperfe ctly competitive, the generaltransfer-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 indiffer ent to selling internally or externally iii. If the transfer price is set at the market price, the buying division will usually purc hase goods from inside its organisation, if product specifications are met. A. i and ii B. ii and iii C. i and iii D. All of the given answers 21. Which of the following statements about the general transfer-pricing rule is/are tru e?

i. When the producing division has excess capacity, the transfer decision should be ba sed on the outlay cost ii. When the producing division has no excess capacity, the opportunity cost is the for egone contribution from the lost sale iii. If the producing division has excess capacity or the external market is imperfectly competitive, the general rule and the external market price will not yield the same tran sfer price. A. i B. ii C. ii and iii D. All of the given answers 22. Which of the following statements is false, with respect to a negotiated transfer pri ce? A. The profit of each division will depend on the negotiating skills of the managers B. The process always results in a spirit of cooperation and unity that is desirable throughout an organisation C. The market price is usually the base line for negotiations D. Negotiations can lead to divisiveness and competition between participating b usiness unit managers 23. Transfer prices should not be based on actual costs because: A. inefficient producing divisions have higher costs of production, which would b e passed on by buying divisions B. producing divisions have no incentives to control costs C. inefficient units with high costs of production have no opportunity for profit D. inefficient producing divisions have higher costs of production, which would b e passed on by buying divisions AND producing divisions have no incentives to c ontrol costs 24. Which of the following statements about costbased transfer prices is/are true i. A transfer price set at standard variable cost plus a mark-up provides an incen tive for the supplying business to make the transfer ii. Absorption costbased transfer prices are good for the company as a whole because all costs are c onsidered iii. Transfer prices should be based on standard costs rather than actual costs sin ce the cost of inefficiency should not be passed on. A. i and ii B. ii and iii C. i and iii D. All of the given answers

25. Transfer prices should not be based on absorption costs as this could result in suboptimal decisions by the: A. personnel division B. competitive market C. buying division D. selling division 26. Which of the following is usually achieved when the general transfer-pricing rule i s implemented? A. Harmony B. Perfect competition C. Goal congruence D. Cost measurement 27. Which of the following statements is/are true? When a multinational compan y transfers goods or services between business units located in different countries i. the tax rates of the different countries will have no effect on overall company p rofits ii. the result is a moving of profits from one country to another iii. the company will consider the tax rates of the different countries when deter mining the transfer price. A. i B. ii C. i and ii D. ii and iii 28. Barrister Company has two divisions: A and Z. The A Division produces a single product that can be sold to outside customers or to Z Division. Sales forecasts, production statistics and costs fo r both divisions for 2014 are shown below: A Division: Z Division: * When A Division sells to Z Division, no variable selling costs are incurred by A Division Calculate the minimum per unit transfer price that A Division should charge Z Division in 2014, using the general transfer-pricing formula A. $6.00

B. $8.50 C. $7.26 D. None of the given answers 29. Polly Woodside Maritime Division purchases from an outside supplier for $52 per unit. The company's Shore Division, which has excess capacity, makes and sells the sa

me part for external customers at a variable cost of $38 and a selling price of $58. If S hore Division commences sales to Maritime Division it will (1) use the general rule an d (2) be able to reduce the variable cost on internal transfers by $4. If external sales ar e not affected, Shore Division should establish a transfer price of: A. $34 B. $38 C. $58 D. None of the given answers 30. Symonds Bendigo Division purchases from an outside supplier for $52 per un it. The company's Ballarat Division, which has no excess capacity, makes and sell s the same part for external customers at a variable cost of $38 and a selling pric e of $58. If Ballarat commences sales to Bendigo it will (1) use the general rule an d (2) be able to reduce the variable cost on internal transfers by $4. If external sa les are not affected, Ballarat should establish a transfer price of: A. $34 B. $38 C. $54 D. $58 31. Corporate policy at Weber Pty Ltd requires that all transfers between divisions be recorded at variable cost as a transfer priceDivisional managers have complete autonomy in choosing their so urces of customers and suppliers. The Milling Division sells a productcalled RK2. Forty per cent o f the sales of RK2 are to the Products Division, while the remainder of the sales are to outside cust omers. 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 th e Milling Division is 25 000 units. The 2014 budget information for the Milling Division, based on full capacity, is presented below. Assu ming the Milling Division manager agrees to the special offer, what is the effect of the decision on the gross margin of Weber as a whole? A. $20 000 decrease B. $50 000 decrease C. $30 000 increase D. $50 000 increas 32. 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 so

urces 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 o f 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 th e Milling Division is 25 000 units. The 2014 budget information for the Milling Division, based o n full capacity, is presented below. Assume the company permits the division managers to negotiat e 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 Prod ucts Division. What is the agreed transfer price?

A. $14.00 B. $13.50 C. $12.50 D. $10.50 33. 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 supplier s. The Milling Division sells a product called RK2. Forty per cent of the sales of RK2 are to the Products Division, while the remainder o f the sales are to outside customers. The manager of the Milling Division is evaluating a special of fer from an outside customer for 10 000 units of RK2 at a per unit price of $15.00. If the special offer were accepted, the Milling Division would be unable to supply those u nits to the Products Division. The Products Division could purchase those units from another supp lier for $17 per unit. Annual capacity for the Milling Division is 25 000 units. The 2014 budget inf ormation for the Milling Division, based on full capacity, is presented below Assume that demand increases for the Milling Division. All 25 000 units can be sold at the regula r price to outside customers and the Product Division's annual demand declines to 5000 units. Wh at transfer price would be calculated under the general transfer-pricing formula? A. $18.00 B. $17.00 C. $16.00 D. $10.00 34. Corporate policy at Weber Pty Ltd requires that all transfers between divisions be recorded at vari able cost as a transfer price Divisional managers have complete autonomy in choosing their sources of customers and supplier s. The Milling Division sells a product called RK2. Forty per cent of the sales of RK2 are to the Products Division, while the remainder o f the sales are to outside customers. The manager of the Milling Division is evaluating a special of fer 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 th e Milling Division is 25 000 units. The 2014 budget information for the Milling Division, based o n full capacity, is presented below Assume that demand increases for the Milling Division. 20 000 units can be sold at the regular pri ce to outside customers and the Products Division's annual demand remains at 10 000 units. What is the transfer price that would be calculated under the general transfer-pricing formula?

A. $12.00 B. $14.00 C. $16.00 D. $18.00 35. Nova Company has two divisions: OPA Division and LPA Division. The OPA Division manufactures a single product, presently operates at 95 per cent of full c apacity (100 000 units) and can sell all 95 000 units produced to outside customer s. This product is also a component used in a product made by the LPA Division. OPA's full cost of production is $22.50 per unit, including $4.50 of applied fixed o verhead costs. The applied fixed overhead is calculated based on production of 9 5 000 units. OPA's management believes that production can be raised to 100 000 units without affecting cost behaviour. OPA's selling price per unit is $30 with a 1 0 per cent sales commission on outside sales. LPA is presently negotiating the pur chase of units from OPA. LPA can purchase a comparable component outside for $29. Using the general transfer-pricing formula, calculate a transfer price for 500 0 units that would be in the best interests of the company as a whole. A. $18.00 B. $22.50 C. $27.80 D. $29.00 36. Nova Company has two divisions: OPA Division and LPA Division. The OPA Div ision manufactures a single product, presently operates at 95 per cent of full capacity ( 100 000 units) and can sell all 95 000 units produced to outside customers. This produ ct is also a component used in a product made by the LPA Division. OPA's full cost of production is $22.50 per unit, including $4.50 of applied fixed overhead costs. The ap plied fixed overhead is calculated based upon production of 95 000 units. OPA's mana gement believes that production can be raised to 100 000 units without affecting cost behaviour. OPA's selling price per unit is $30 with a 10 per cent sales commission on outside sales. LPA is presently negotiating the purchase of units from OPA. LPA can p urchase a comparable component outside for $29. What is the minimum acceptable tr ansfer price for the first 5000 units from the viewpoint of OPA's management? A. $18.00

B. $22.00 C. $27.00 D. $27.80 37. Division A transfers a profitable subassembly to Division B, where it is assembled into a final product. Division A is located in New Zealand, which has a high tax rate. Division B is l ocated in Thailand, which has a low tax rate. Ideally, (1) which type of before tax income sho uld each division report from the transfer and (2) what type of transfer price should be set fo r the subassembly? Division A Division B Division C Income Income Price

A low low low B low high low C low high high D high low high 38. Which of the following statements about transfer pricing is/are true? i. Income taxes and import duties are an important consideration when setting a transf er price for international companies ii. Transfer prices cannot be used by organisations in a service industry iii. Transfer prices are totally cost-based and not market-based. A. i B. ii C. i and ii D. All of the given answers 39. Hamilton has no excess capacity. If the company wishes to implement the gen eral transfer-pricing rule, the opportunity cost would be equal to: A. zero B. the direct expenses incurred in producing the goods C. the total difference in the cost of production between two divisions D. the contribution foregone from the lost external sale

40. Hamilton has excess capacity. If the company wishes to implement the genera l transfer-pricing rule, the opportunity cost would be equal to: A. zero B. the direct expenses incurred in producing the goods C. the total difference in the cost of production between two divisions D. the sum of the variable cost plus the fixed cost 41. Business unit profit and loss statements show: A. profits for the major responsibility centres and for the organisation as a whole B. profits by quarter for the organisation as a whole C. comparative profits by year for the organisation as a whole D. All of the given answers 42. A common cost is: A. not easily related to any business unit's activities B. avoidable C. employees' wages D. direct labour 43. One advantage of business unit reports is that they make a distinction betwee n business units and: A. business unit managers B. budgets C. allocated costs D. cost objects 44. Which of the following statements about business unit reporting is/are true? i. Business unit reports distinguish between costs that are controllable by the busi ness unit manager and costs that are beyond the influence of the business unit m anager ii. These statements must be presented in an absorption-costing format iii. Business unit reporting shows profit and loss statements for the company as a whole and for its major business units.

A. i and ii B. All of the given answers C. i and iii D. ii and iii 45. Business unit reporting shows profit and loss statements for the company as a whole and for: A. its major business units B. controllable expenses C. uncontrollable expenses D. the contribution margin 46. The following information was taken from the business united profit and loss statement of Re sell Real Estate Agents for 2014: In addition, the company incurred common fixed costs of $18 00 0. What was the business unit margin of the Tamworth Division during 2014?

A. ($8000) B. $4000 C. $10 000 47. The following information was taken from the business unit profit and loss statement of Rese ll Real Estate Agents for 2014: In addition, the company incurred common fixed costs of $18 000. Which amount should be used to evaluate the Sydney Division as an investment of the company?

A. $25 000 B. $10 000 C. $4000 D. ($...