Question 1

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

Accepted Answer

Suboptimization is the situation where a decision is beneficial for a certain part of a company or a department, but it negatively impacts the overall company performance. Therefore, the given management decision that benefits a profit center, but not the entire company, would lead to suboptimization. The company should strive for goal congruence, i.e., decisions that benefit the entire company, rather than just a part of it. Centralization refers to the concentration of decision-making power, which is not related to the given scenario. Maximization refers to the process of maximizing performance, which is not specific enough to address the given scenario.

Question 2

The maximum of the transfer price negotiation range is

Accepted Answer

The answer of The maximum of the transfer price negotiation...

Question 3

A transfer pricing system is also known as

Accepted Answer

A transfer pricing system is also known as a charge-back system, where internal transactions between divisions of a company are priced for accounting purposes.

Question 4

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

Accepted Answer

A desirable characteristic of a transfer pricing system is that it should align with the organizational goals, i.e., it should promote goal congruence. Option A contradicts the concept of fairness, which is also a desirable characteristic. Option B is not desirable as it may create conflicts between subunits and may result in suboptimal decision-making. Option D is not a consistent desirable characteristic, as transfer prices may need to be adjusted based on changes in market conditions.

Question 5

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

Accepted Answer

A full-cost-based transfer price includes all costs incurred by the supplying unit, including overhead costs. However, this can result in the supplying unit having limited control over their costs as they are being charged for all costs, regardless of whether they have control over them. This can lead to inefficiencies and higher costs for the company overall. Therefore, using a different transfer pricing method that allows for more targeted cost control, such as a market-based price or a negotiated price, may be more beneficial.

Question 6

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

Accepted Answer

In a responsibility accounting system, costs are classified into categories based on whether they are controllable by the manager of a particular department or not. Controllable costs are the ones that the manager has the power to influence or affect, while non-controllable costs are those that are outside the manager's control. This classification helps in evaluating the performance of individual managers and their contribution to the organization's overall success. Therefore, choice D, i.e., controllable and non-controllable costs is the most appropriate answer.

Question 7

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

Accepted Answer

The profit center manager should be evaluated on all revenues and costs under his/her control. This includes both direct and indirect costs as well as all revenues generated by the unit. This approach provides a comprehensive view of the unit's performance and allows for better decision making on how to improve the profitability of the unit. Options A, C, and D are either too narrow or too broad to provide an accurate assessment of the manager's performance.

Question 8

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

Accepted Answer

The price of goods transferred between divisions in a company with autonomous division managers typically needs to be mutually agreed upon by both divisional managers to ensure fairness and alignment with each division's interests and goals.

Question 9

The presence of idle capacity in the selling division may increase

Accepted Answer

The answer of The presence of idle capacity in the...

Question 10

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

Accepted Answer

Allocated fixed overhead should not be included in periodic internal reports based on a responsibility accounting system for performance evaluation because these costs are not controllable by the manager being evaluated. Responsibility accounting focuses on providing information related to costs and revenues that are directly under the control of a specific manager. Including allocated fixed overhead can distort the evaluation of a manager's performance since these costs are not influenced by the manager's decisions.

Question 11

A major benefit of cost-based transfers is that

Accepted Answer

The answer of A major benefit of cost-based transfers is...

Question 12

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

Accepted Answer

A responsibility center is a cost object under the control of a manager. This type of center is responsible for a particular aspect of the business, such as a cost center, revenue center, or profit center. The manager is accountable for the performance of the center, and makes decisions that affect its costs or revenues. Therefore, option C is the best choice. Options A, B, and D do not accurately describe the concept of a responsibility center in accounting.

Question 13

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

Accepted Answer

A responsibility report shows the revenues and costs that are under the control of a particular manager, making it the best option for this scenario. Quality audit reports evaluate a company's quality control processes, performance evaluation reports reflect an individual's job performance, and project reports provide updates on project progress.

Question 14

The minimum potential transfer price is determined by

Accepted Answer

The minimum potential transfer price is determined by the incremental costs in the selling division because it represents the lowest price at which the selling division would be willing to sell the product internally without incurring a loss. This includes variable costs and any avoidable fixed costs directly associated with producing the product for the internal transfer.

Question 15

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

Accepted Answer

Basing transfer prices on market price ensures that each division is operating under market conditions and motivates them to operate in the most efficient manner. This also allows for a fair and equitable allocation of profits among the company's different divisions.

Question 16

As the internal transfer price is increased,

Accepted Answer

When the internal transfer price is increased, the profits in the selling division increase. This is because the selling division is charging a higher price for the goods or services they are providing to the buying division, which increases their revenue and profit. However, this does not necessarily mean that overall corporate profits increase, as the increased cost for the buying division may hurt their profits.

Question 17

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

Accepted Answer

The answer of If a division is set up as...

Question 18

Performance evaluation measures in an organization

Accepted Answer

Performance evaluation measures can affect the motivation of subunit managers to transact with each other. If the measures incentivize individual goals over the goals of the overall organization, managers may prioritize their own goals over collaboration with other subunits. This can create silos and hinder overall organizational performance. It is important for performance evaluation measures to promote collaborative behavior and alignment with organizational goals to prevent this from happening.

Question 19

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?

Accepted Answer

Responsibility accounting is an accounting system that emphasizes the control function of a foreperson, sales manager, or supervisor by breaking down the operations of the business into reportable segments. Each manager is responsible for their specific area, and their performance is evaluated based on the results of that area. Operations-research accounting is an approach that focuses on mathematical models and algorithms to optimize operations, while control accounting and budgetary accounting are not specific systems for breaking down operations or emphasizing control by managers.

Question 20

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

Accepted Answer

An internal reconciliation account is used to reconcile differences between internal transfer prices and external market prices. If transfers are based on cost, there is no need for reconciliation as the price is already internal and does not need to be compared to external market prices. Therefore, option D is the correct answer.

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