Question 1

All of the following are benefits of decentralization EXCEPT
A) it creates greater responsiveness to local needs.
B) it decreases management and worker morale.
C) it leads to quicker decision making.
D) it sharpens the focus of managers.
E) it leads to better supplier relationships.

Accepted Answer

Decentralization generally increases management and worker morale by giving them more autonomy and decision-making power. Therefore, option B is incorrect. The other options are all benefits of decentralization.

Question 2

Companies may approach tax authorities to obtain an APA (Advanced Transfer Price Arrangement).

Accepted Answer

Companies can approach tax authorities to obtain an APA in order to establish a transfer pricing arrangement for cross-border transactions that will be accepted by tax authorities.

Question 3

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 4

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

Accepted Answer

Intermediate products refer to products that are transferred between subunits within the organization for further processing or completion.

Question 5

Exertion towards a goal is
A) motivation.
B) effort.
C) goal congruence.
D) incentive.
E) loyalty.

Accepted Answer

Exertion towards a goal refers specifically to the amount of effort put forth to achieve said goal. Motivation is the driving force behind the exertion, goal congruence refers to the compatibility between individual and organizational goals, incentive is something offered to motivate action, and loyalty refers to a sense of allegiance or commitment.

Question 6

Which of the following is NOT a responsibility centre within an organization, whether centralized or decentralized?
A) cost centre
B) profit centre
C) revenue centre
D) savings centre
E) investment centre

Accepted Answer

Cost centre, profit centre, revenue centre, and investment centre are all types of responsibility centres that are either focused on generating revenue or controlling costs/expenses. A savings centre is not a recognized type of responsibility centre within an organization.

Question 7

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. Freedom for managers at lower organizational levels to make decisions.
b. Gathering information may be very expensive.
c. Greater responsiveness to user needs.
d. Have few interdependencies among divisions.
e. Maximum constraints and minimum freedom for managers at lowest levels.
f. Maximization of benefits over costs.
g. Minimization of duplicate functions.
h. Minimum of sub optimization.
i. Multiple responsibility centres with various reporting units.
j. Profit centres

Accepted Answer

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

Question 8

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

Accepted Answer

The given scenario describes a transfer price, where one department charges another department within the same organization for services provided. The amount charged is considered the transfer price. In this case, Department A is charging Department B $1,350 for copying services, which qualifies as a transfer price.

Question 9

The president of Silicon Company has just returned from a week of professional development courses and is very excited that she will not have to change the organization from a centralized structure to a decentralized structure just to have responsibility centres. However, she is somewhat confused about how responsibility centres relate to centralized organizations where a few managers have most of the authority.
Required:
Explain how a centralized organization might allow for responsibility centres.

Accepted Answer

The answer of The president of Silicon Company has just...

Question 10

Which of the following statements is False?
A) A centralized structure does not empower employees to handle customer complaints directly.
B) A decentralized structure forces top management to lose some control over the organization.
C) Decentralization slows responsiveness to local needs for decision making.
D) The extent to which decisions are pushed downward, and the types of decisions that are pushed down, provide a measure of the level of centralization/decentralization in an organization.
E) Decentralization can increase motivation by allowing managers to exercise greater individual initiative.

Accepted Answer

Decentralization actually speeds up responsiveness to local needs for decision making by allowing decisions to be made closer to the source of the problem. This statement is false.

Question 11

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

Accepted Answer

The answer of Examples of market-based transfer prices include variable...

Question 12

The degree of freedom to make decisions is
A) decentralization.
B) autonomy.
C) centralization.
D) motivation.
E) goal congruence.

Accepted Answer

Autonomy refers to the degree of freedom given to an individual or team to make decisions within a specific job function or task. This is opposed to centralization, where decision-making is concentrated at higher levels of management, and decentralization, where decision-making is distributed across multiple levels of management. Motivation and goal congruence are related but distinct concepts that do not directly refer to the degree of freedom to make decisions.

Question 13

What is the purpose of the internal control system within an organization?

Accepted Answer

The answer of What is the purpose of the internal...

Question 14

The costs used in cost-based transfer prices can only be actual costs.

Accepted Answer

Cost-based transfer prices can be based on both actual costs and estimated costs, depending on the situation and the company's preferences.

Question 15

Discuss the possible problems a corporation might have if its operations are totally decentralized.

Accepted Answer

The answer of Discuss the possible problems a corporation might...

Question 16

Discuss some of the recent legislation and frameworks relating to assurance and internal controls.

Accepted Answer

The answer of Discuss some of the recent legislation and...

Question 17

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. Different methods can result in different profit margins for each division, leading to differences in the amount of income allocated to each one. This can have implications for various aspects of a company's operations, such as tax liabilities and incentive-based compensation programs. Therefore, choosing the right transfer-pricing method is an important decision for companies to make.

Question 18

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

Accepted Answer

While market price may be used in certain circumstances, such as when the two subunits are located in different geographic regions, there are other pricing methods that may be more appropriate for internal transfers, such as cost-based pricing or negotiated transfer pricing.

Question 19

An advantage of decentralization is that it
A) creates greater responsiveness to local needs.
B) focuses manager's attention on the organization as a whole.
C) does not result in a duplication of activities.
D) reduces the cost of gathering information.
E) increases loyalty toward the organization as a whole.

Accepted Answer

Decentralization allows decision-making to be pushed down to individual departments or regions, which can better understand local needs and respond more quickly to changing circumstances. This creates greater responsiveness to local needs.

Question 20

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

Accepted Answer

The answer of Negotiated transfer prices are always transacted at...

Quiz 23: Transfer Pricing and Multinational Management Control Systems

All of the following are benefits of decentralization EXCEPT