Question 1

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

Full-cost-based transfer prices do not always guarantee that the supplying unit will control its costs. In situations where the supplying unit has excess capacity and is not operating at full capacity, a full-cost price may result in an artificially high transfer price, which could discourage the receiving unit from purchasing internally. Therefore, using an alternative transfer pricing method that focuses on incremental costs or market-based prices may be more appropriate.

Question 2

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 3

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 4

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 in a competitive environment and encourages efficiency and optimization of resources. This approach also reflects the true value of the product and prevents any arbitrary allocation of costs.

Question 5

As the internal transfer price is increased,

Accepted Answer

As the internal transfer price is increased, the profits in the selling division increase. This is because higher transfer prices lead to higher revenue and profits for the selling division, but it also leads to higher costs and lower profits for the buying division. However, overall corporate profits may not necessarily increase as the increased profits in the selling division may be offset by the decreased profits in the buying division.

Question 6

Performance evaluation measures in an organization

Accepted Answer

Performance evaluation measures can affect the motivation of subunit managers to transact with one another. If the evaluation measures are based on individual performance and do not take into account the performance of the subunit as a whole, it can lead to suboptimization and a lack of cooperation between subunits. This can decrease motivation to work together and achieve overall organizational goals.

Question 7

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 8

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 involves breaking down a business's operations into reportable segments and emphasizing the control function of a foreperson, sales manager, or supervisor. Operations-research accounting emphasizes the use of mathematical models to optimize business operations, while control accounting focuses on identifying and reducing risks in the business's processes. Budgetary accounting involves creating and tracking budgets for the business's operations. Therefore, the best choice is responsibility accounting.

Question 9

A transfer pricing system is also known as

Accepted Answer

A transfer pricing system is a method used to allocate costs and revenues between different departments or business units within an organization. It is also known as a charge-back system because it involves charging one department for the services or goods provided by another department. The other options are not correct as they do not specifically refer to the process of transfer pricing.

Question 10

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 occurs when a decision benefits one part of the organization but hurts another. In this case, the decision made by the profit center may maximize their profits but may not be beneficial for the entire company as a whole. This can lead to conflicts and inefficiencies, ultimately affecting the performance of the entire company.

Question 11

The maximum of the transfer price negotiation range is

Accepted Answer

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

Question 12

The presence of idle capacity in the selling division may increase

Accepted Answer

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

Question 13

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

Accepted Answer

An internal reconciliation account is used to reconcile differences between the prices used for internal transfers and the prices used for external transactions. This is necessary when there are dual prices or negotiated prices involved. However, if the internal transfers are based solely on cost (i.e. there are no dual prices or negotiated prices), then an internal reconciliation account is not required. Therefore, choice D is the best answer.

Question 14

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

Accepted Answer

A transfer pricing system that reflects organizational goals is desirable because it aligns the interests of the buying and selling units with the overall goals of the organization. This can help to promote cooperation and coordination between units, and can help to ensure that the transfer pricing system is consistent with the overall strategy of the organization. Complexity and a lack of transparency regarding the impact on subunit performance can lead to unintended consequences and may not be desirable. A transfer price remaining constant for a specific period of time may not be the most desirable characteristic, as market conditions can change rapidly and may necessitate adjustments to the transfer price.

Question 15

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 16

A major benefit of cost-based transfers is that

Accepted Answer

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

Question 17

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 controllable and noncontrollable costs based on whether or not they can be directly influenced by the manager of the department or individual being held accountable for those costs. This allows for a more precise evaluation of performance and incentivizes managers to exercise better cost control. Therefore, option D is the best choice.

Question 18

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

Accepted Answer

Evaluating a profit center manager on all revenues and costs under his or her control would give the most accurate assessment of their performance as it takes into account their ability to manage and make decisions regarding resources within the unit. A) and C) are too narrow in focus, while D) is not specific enough.

Question 19

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 is specifically designed to reflect the revenues and/or costs that are under the control of a particular manager. Quality audit reports, performance evaluation reports, and project reports may touch on financial information, but they are not focused solely on the revenues and/or costs of a specific manager.

Question 20

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

Accepted Answer

A responsibility center is the cost object that is under the control of a manager. A manager is responsible for the costs, revenues, and investments associated with a particular responsibility center. Cost centers are responsible for controlling costs, revenue centers for generating revenue, and investment centers for both controlling costs and generating revenue. Therefore, the best choice is C)responsibility.

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