Question 1

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

A transfer pricing method should lead to managers acting in their own best interest and their decisions being in the long-term best interest of the company. This means that managers should consider the impact of their decisions on the overall performance of the company, not just their own subunit. Ideally, the transfer pricing method should align the incentives of the managers with the goals of the company as a whole.

Question 2

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

Accepted Answer

Market-based transfer prices are determined based on the prices that would be charged for those goods or services in the open market between unrelated parties. Tax authorities generally accept these prices because they reflect arm's length transactions, which means that they are fair and equivalent to those that would be charged between unrelated parties. This helps to prevent companies from manipulating transfer prices to reduce their tax liability.

Question 3

Use the information below to answer the following question(s).
Bon Accord uses two divisions in the production of soybean burgers.Division A sells soybean paste internally to Division B,which,in turn,produces soybean burgers that sell for $5 per kilogram.Division A incurs costs of $0.75 per kilogram,while Division B incurs additional costs of $2.50 per kilogram.
-What is Division A's operating income per kilogram assuming the transfer price of the soybean paste is set at $1.25 per kilogram?
A)$0.500
B)$0.875
C)$1.250
D)$1.625
E)$1.525

Accepted Answer

Division A incurs costs of $0.75 per kilogram and sells the soybean paste at $1.25 per kilogram to Division B. Therefore, its contribution margin per kilogram is $1.25 - $0.75 = $0.50. Operating income per kilogram is equal to contribution margin per kilogram.

Question 4

Answer the following question(s)using the information below:
Greenlawn Ltd.has two divisions,Distribution and Production.The company's primary product is fertilizer.Each division's costs are provided below:
  The Distribution Division has been operating at a capacity of 4,000,000 kilograms a week and usually purchases 2,000,000 kilograms from the Production Division and 2,000,000 kilograms from other suppliers at $0.45 per kilogram.
-What is the transfer price per kilogram from the Production Division to the Distribution Division,assuming the method used to place a value on each kilogram of fertilizer is 160% of variable costs?
A)$0.05
B)$0.11
C)$0.08
D)$0.40
E)$0.48

Accepted Answer

To calculate the transfer price, first, we need to find the variable cost per kilogram. Using the given table, the variable cost per kilogram for the Production Division is $0.05. 
Next, we use the given method of placing a value on each kilogram of fertilizer at 160% of variable costs. 
160% of $0.05 = $0.08 
Therefore, the transfer price per kilogram from the Production Division to the Distribution Division is $0.08. 
Therefore, the best choice is C as it provides the correct transfer price calculation.

Question 5

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 from the Production Division to the Refining Division assuming the method is 120% of full costs?
A)$16.80
B)$12.00
C)$9.50
D)$7.20
E)$12.50

Accepted Answer

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

Question 6

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 7

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 criteria listed (B-E) are relevant for selecting an appropriate transfer-pricing method.

Question 8

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,the...

Question 9

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 10

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

Accepted Answer

The answer of The Canada Revenue Agency has adopted International...

Question 11

Use the information below to answer the following question(s).
Bon Accord uses two divisions in the production of soybean burgers.Division A sells soybean paste internally to Division B,which,in turn,produces soybean burgers that sell for $5 per kilogram.Division A incurs costs of $0.75 per kilogram,while Division B incurs additional costs of $2.50 per kilogram.
-What is Division B's operating income per kilogram assuming the transfer price of the soybean paste is set at $1.25 per kilogram?
A)$0.500
B)$0.875
C)$1.250
D)$1.625
E)$1.525

Accepted Answer

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

Question 12

Answer the following question(s)using the information below:
Greenlawn Ltd.has two divisions,Distribution and Production.The company's primary product is fertilizer.Each division's costs are provided below:
  The Distribution Division has been operating at a capacity of 4,000,000 kilograms a week and usually purchases 2,000,000 kilograms from the Production Division and 2,000,000 kilograms from other suppliers at $0.45 per kilogram.
-What is the transfer price per kilogram from the Production Division to the Distribution Division,assuming the method used to place a value on each kilogram of fertilizer is 120% of full costs?
A)$0.30
B)$0.36
C)$0.45
D)$0.55
E)$0.42

Accepted Answer

To calculate the transfer price per kilogram, we need to first calculate the full cost per kilogram in the Production Division.
Full cost per kilogram = direct materials + direct labor + variable overhead + fixed overhead
= $0.20 + $0.10 + $0.06 + $0.04 (120% of fixed overhead)
= $0.40
Transfer price per kilogram = full cost per kilogram x 120% = $0.40 x 1.2 = $0.48
However, since the Distribution Division already purchases 2,000,000 kilograms from other suppliers at $0.45 per kilogram, Greenlawn Ltd. will not transfer the fertilizer at a price higher than $0.45 per kilogram. Therefore, the transfer price per kilogram from the Production Division to the Distribution Division will be $0.45.

Question 13

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 Refining Division's operating income if 150 litres of oil are sold at $110 /litre and 200 litres are transferred in? Assume the transfer price is based on 175% of variable costs.
A)$16,500
B)$15,600
C)$525
D)$6,825
E)$8,500

Accepted Answer

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

Question 14

Use the information below to answer the following question(s).
Bon Accord uses two divisions in the production of soybean burgers.Division A sells soybean paste internally to Division B,which,in turn,produces soybean burgers that sell for $5 per kilogram.Division A incurs costs of $0.75 per kilogram,while Division B incurs additional costs of $2.50 per kilogram.
-What is Bon Accord's operating income per kilogram?
A)$1.75
B)$1.25
C)$0.50
D)$0
E)$2.00

Accepted Answer

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

Question 15

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 request an Advanced Transfer Price Arrangement from tax authorities to obtain clarity on whether a proposed transfer pricing arrangement will be deemed acceptable for tax purposes. This can help avoid potential disputes or penalties related to transfer pricing.

Question 16

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

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 Production Division's operating income per 200 litres of oil reported under the 175% of variable costs method?
A)$1,500
B)$880
C)$100
D)$(100)
E)$1,200

Accepted Answer

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

Question 18

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 from production to refining if the market price method of pricing is used?
A)$24
B)$32
C)$36
D)$40
E)$38

Accepted Answer

The market price method of pricing involves setting the transfer price equal to the market price of the product. In this case, the Production Division is able to sell the oil to other areas for $24 per litre, making $24 the transfer price per litre from Production to Refining.

Question 19

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 refers to a product that is transferred from one subunit to another within the same organization for further processing or to be used as an input in the production of another product.

Question 20

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 general method for determining transfer prices as they are not directly related to the pricing decision. Rather, taxation policies may influence the transfer pricing decision indirectly as companies seek to minimize their tax liabilities. The other choices, cost-based transfer prices, market-based transfer prices, and negotiated transfer prices, are all general methods for determining transfer prices. Multi-national transfer prices may also be considered a valid option as it is a subset of transfer pricing that specifically relates to multinational companies.

Quiz 21: Transfer Pricing and Multinational Management Control Systems

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

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

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

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.

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

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

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

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

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

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