Question 1

A product is know as ________ when it is transferred from one subunit to another subunit in the same organization.
A)an interdepartmental product
B)an intermediate product
C)a subunit product
D)a transfer product
E)a secondary product

Accepted Answer

An intermediate product is a product that is transferred from one subunit to another subunit in the same organization.

Question 2

Products transferred between subunits within an organization are considered intermediate products.

Accepted Answer

Intermediate products are those that are transferred between subunits within an organization as part of the production process. These products are not final products that are sold to external customers.

Question 3

Subunits X and Y determined the price for interdepartmental services during the last monthly meeting, using the selling prices charged to outside parties.This is an example of
A)subunit transfer prices.
B)negotiated transfer prices.
C)market-based transfer prices.
D)cost-based transfer prices.
E)multinational transfer pricing.

Accepted Answer

The answer of Subunits X and Y determined the price...

Question 4

Negotiated transfer prices are always transacted at the top management levels.

Accepted Answer

Negotiated transfer prices can be determined at various management levels, not exclusively at the top management level.

Question 5

The Canada Revenue Agency has adopted International Financial Reporting Standards as the framework for transfer pricing regulations.

Accepted Answer

The Canada Revenue Agency uses the OECD Transfer Pricing Guidelines, not International Financial Reporting Standards, for transfer pricing regulations.

Question 6

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

Accepted Answer

The choice of transfer-pricing method can have a significant effect on the allocation of company-wide operating income among divisions, as different methods may result in different levels of profit for each division. This can impact decision-making, incentives, and evaluation of divisional performance. Therefore, choosing an appropriate transfer-pricing method is crucial for effective management of a multinational company.

Question 7

Companies may approach tax authorities to obtain an Advanced Transfer Price Arrangement to ascertain if a proposed transfer pricing arrangement is acceptable.

Accepted Answer

This statement is true. Companies may choose to request an Advanced Transfer Price Arrangement from tax authorities in order to obtain an indication of whether their proposed transfer pricing arrangement will be acceptable or not. This can provide greater certainty and reduce the risk of future disputes with tax authorities.

Question 8

Market price is the only price that a firm should use when transferring goods from one subunit to another subunit.

Accepted Answer

A firm may use transfer pricing, which is the price used to transfer goods from one subunit to another within the same company. This price may not necessarily be the market price, and instead can be based on various factors such as cost, negotiated agreement, or a predetermined rate.

Question 9

All of the following are general methods for determining transfer prices EXCEPT
A)cost-based transfer prices.
B)market-based transfer prices.
C)negotiated transfer prices.
D)taxation policies.
E)multi-national transfer prices.

Accepted Answer

Taxation policies are not a method for determining transfer prices. The other options are all common methods used in determining transfer prices.

Question 10

For each of the following activities, characteristics, and applications, tell whether they are primarily labelled as being found in a centralized organization, a decentralized organization, or both types of organizations.
A)both
B)centralization
C)decentralization
-Multiple responsibility centres with various reporting units.

Accepted Answer

The answer of For each of the following activities, characteristics,...

Question 11

Department A charges Department B $1,350 for copying services provided.The $1,350 is considered a transfer price.

Accepted Answer

The given statement describes a transfer price where a department (Department A) charges another department (Department B) for services provided. In this case, the amount charged is $1,350. Therefore, option A is correct.

Question 12

Market-based transfer prices are generally accepted by tax authorities because they represent arm's length prices.

Accepted Answer

Market-based transfer prices are based on prices established in actual market transactions between unrelated parties, which reflect arm's length prices. As a result, tax authorities generally accept market-based transfer prices as a fair and reasonable way to allocate income and expenses among related parties.

Question 13

Examples of market-based transfer prices include variable manufacturing costs, full manufacturing costs, and full product costs.

Accepted Answer

Market-based transfer prices are determined by external market conditions and prices, not by internal cost structures like variable manufacturing costs, full manufacturing costs, and full product costs.

Question 14

For each of the following activities, characteristics, and applications, tell whether they are primarily labelled as being found in a centralized organization, a decentralized organization, or both types of organizations.
A)both
B)centralization
C)decentralization
-Profit centres

Accepted Answer

The answer of For each of the following activities, characteristics,...

Question 15

The price one subunit of an organization charges for a product or service supplied to another subunit of the same organization is called
A)an interdepartmental product price.
B)an intermediate product price.
C)a subunit price.
D)a transfer price.
E)a fixed price.

Accepted Answer

The correct term for this scenario is a transfer price. It refers to the price at which one department of an organization sells goods or services to another department within the same organization. This is often used for accounting and cost allocation purposes.

Question 16

A transfer pricing method should lead to which of the following results?
A)managers always acting in their own best interest
B)managers acting in their own best interest and their decisions being in the long-term best interest of the manager's subunit
C)managers acting in their own best interest and their decisions being in the long-term best interest of the company
D)managers not acting in their own best interest and their decisions being in the best interest of the company
E)managers competing with each other so that they become more efficient

Accepted Answer

Transfer pricing method should lead to managers acting in their own best interest while also making decisions that benefit the long-term interests of the company as a whole. This promotes overall efficiency and effectiveness of the organization.

Question 17

Use the information below to answer the following question(s).Blackoil Corp.has two divisions, Refining and Production.The company's primary product is Clean Oil.Each division's costs are provided below:
  The Production Division is able to sell the oil to other areas for $24 per litre.The Refining Division has been operating at a capacity of 80,000 litres a day, using oil from the Production Division and oil purchased from other suppliers.The Refining Division usually purchases 50,000 litres of oil, on average, from the Production Division and 30,000 litres, on average, from other suppliers at $40/litre.
-What is the transfer price per litre assuming the method used is 175% of variable costs?
A)$10.50
B)$12.00
C)$17.50
D)$24.50
E)$12.50

Accepted Answer

The answer of Use the information below to answer the...

Question 18

For each of the following activities, characteristics, and applications, tell whether they are primarily labelled as being found in a centralized organization, a decentralized organization, or both types of organizations.
A)both
B)centralization
C)decentralization
-Minimum of sub optimal decision making.

Accepted Answer

The answer of For each of the following activities, characteristics,...

Question 19

No matter how low the transfer price, the manager of the selling division should sell the division's product to other company divisions in the interests of overall company profitability.

Accepted Answer

The answer of No matter how low the transfer price,...

Question 20

All of the following criteria may be used to choose a transfer-pricing method EXCEPT
A)promotion of quality products.
B)promotion of a sustained high level of management effort.
C)promotion of a high level of subunit autonomy.
D)promotion of goal congruence.
E)help top management evaluate subunit performance.

Accepted Answer

Promotion of quality products is not a relevant criterion for choosing a transfer-pricing method. The other options (B, C, D, and E) are all valid criteria for choosing a transfer-pricing method.

Quiz 21: Transfer Pricing and Multinational Management Control Systems

A product is know as ________ when it is transferred from one subunit to another subunit in the same organization.

Products transferred between subunits within an organization are considered intermediate products.

Subunits X and Y determined the price for interdepartmental services during the last monthly meeting, using the selling prices charged to outside parties.This is an example of

Negotiated transfer prices are always transacted at the top management levels.

The Canada Revenue Agency has adopted International Financial Reporting Standards as the framework for transfer pricing regulations.

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

Companies may approach tax authorities to obtain an Advanced Transfer Price Arrangement to ascertain if a proposed transfer pricing arrangement is acceptable.

Market price is the only price that a firm should use when transferring goods from one subunit to another subunit.

All of the following are general methods for determining transfer prices EXCEPT

Department A charges Department B $1,350 for copying services provided.The $1,350 is considered a transfer price.

Market-based transfer prices are generally accepted by tax authorities because they represent arm's length prices.

Examples of market-based transfer prices include variable manufacturing costs, full manufacturing costs, and full product costs.

For each of the following activities, characteristics, and applications, tell whether they are primarily labelled as being found in a centralized organization, a decentralized organization, or both types of organizations. A)both B)centralization C)decentralization -Profit centres

The price one subunit of an organization charges for a product or service supplied to another subunit of the same organization is called

A transfer pricing method should lead to which of the following results?

No matter how low the transfer price, the manager of the selling division should sell the division's product to other company divisions in the interests of overall company profitability.

All of the following criteria may be used to choose a transfer-pricing method EXCEPT