Question 1

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

Accepted Answer

The answer of In a decentralized organization, the cost objective...

Question 2

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.

Accepted Answer

Decentralized business structures are more characteristic of firms that grow very quickly, as they allow for faster decision-making and adaptability by distributing authority across various levels and locations.

Question 3

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

Accepted Answer

The answer of An organizational unit that provides specific tasks...

Question 4

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 5

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

Accepted Answer

The answer of An organizational unit whose manager is solely...

Question 6

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

Accepted Answer

The answer of The transfer of authority, responsibility, and decision-making...

Question 7

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

Accepted Answer

The answer of Three types of transfer prices are _________________________,...

Question 8

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

Accepted Answer

The answer of A responsibility center whose manager is responsible...

Question 9

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.

Accepted Answer

When the majority of authority is maintained by top management personnel, the organization is said to be centralized. Centralized organizations have a hierarchical structure where decisions and control are concentrated at the top levels of management.

Question 10

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.

Accepted Answer

Transfer pricing is primarily incurred in decentralized organizations where different units or divisions within the company are located in different countries or regions with different tax laws and regulations. These units may engage in cross-border transactions with each other and set transfer prices for goods or services exchanged, which can affect the allocation of profits and tax liabilities among the units and the overall tax obligations of the multinational corporation.

Question 11

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 ______________________________.

Accepted Answer

The answer of An organizational unit that is responsible for...

Question 12

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) _____________________________________________.

Accepted Answer

The answer of A binding contract between a company and...

Question 13

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.

Accepted Answer

Slow response time to changes in local conditions is actually a cost of decentralization. The other options listed are all costs that come with decentralization.

Question 14

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

Accepted Answer

The answer of An organizational unit that performs management activities,...

Question 15

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

Accepted Answer

An advance pricing agreement (APA) is a contract between a taxpayer and a tax authority that sets out an agreed transfer pricing methodology for a set of transactions. By agreeing to an APA, the taxpayer can eliminate or mitigate the possibility of double taxation by both the home and host countries on multinational exchanges of goods. Thus, the statement is true.

Question 16

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

Accepted Answer

The answer of The accounting practices that are practiced by...

Question 17

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 ____________________.

Accepted Answer

The answer of A situation in which managers pursue goals...

Question 18

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) ______________________________.

Accepted Answer

The answer of An organizational unit whose manager is responsible...

Question 19

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

Accepted Answer

The answer of A responsibility center in which a manger...

Question 20

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.

Accepted Answer

The transfer pricing system should be designed to aid in the appraisal and motivation of managerial performance. This is because it is important for division managers to make decisions that are in the best interest of the overall company, rather than just their own division. By using a transfer pricing system that incentivizes cooperation between divisions and rewards managers who make decisions that benefit the entire company, the company can achieve greater overall success.

Quiz 13: Responsibility Accounting, Support Department Allocations, and Transfer Pricing