Chapter 12 Testbank Key 1, When managers within the various subunits of an organisation are committed to achieving the (.558) goals set by top management, the result is: goal congruence 8. planning and control responsibility accounting D. delegation of decision making irtcutty: Easy Learning Objective: 12-02 Explain the benefits and costs of decentralisation 2. Responsibility accounting (p. $59) A. fosters goal congruence B. involves using the various concepts and tools used by management accountants for planning and control is used to measure the performance of subunits D. All of the given answers ‘AACSB: Reflective Difficulty: Easy Learning Objective: 12-02 Define and provide examples of responsibilty centres: cost centres, revenue centres, profit centres and investment centres 3. The biggest challenge in making a decentralised organisation function effectively is: (. 558) A. to eam maximum profits through fair practices 8. to minimise organisational losses taking advantage of the specialised knowledge and skills of a manager . obtaining goal congruence among the organisation's autonomous managers ip AACSB: Reflective Difficulty: Easy Learning Objective: 12-02 Explain the benefits and costs of decentralisation This documents avalate tee ochageon SEUDOCUL.COM Downloaded by kim Kim (nokimhueqahl@gmal.com)4, (. 558) 5. (. 558) 6. (p. 958) Which of the following is not a benefit of decentralisation? > . Specialised information about the local markets 8. Motivati on Relief to upper-level management D, Narrow focus on the manager's own subunit AACSB: Reflective Difficulty: Easy Learning Objective: 12-01 Explain the benefits and costs of decentralisation Delegating decision making to lower-level managers, thereby enabling an organisation to react quickly to opportunities and problems as they arise, is a characteristic of: A. a decentralised organisation 8. a centralised organisation Ga corporation D. responsibility accounting AACSB: Reflective Ditfculty: Easy Learning Objective: 12-01 Explain the benefits and costs of decentralisation What is a negative consequence of decentralisation? A. Narrow focus B. Services may be duplicated C, Suboptimal decisions may be made D. All of the given answers AACSB: Reflective Dittculty: Easy Learning Objective: 12-01 Explain the benefits and costs of decentralisation Downloaded by kim Kim (nokimhueqahl@gmal.com)7. Which of the following statements is/are false? (p. 558) A. Goal congruence is difficult to achieve because managers are often unaware of the effects of their decisions on the organisation's subunits. 8. The development of performance measures to evaluate a subunit and its managers will help achieve goal congruence. &, People are naturally concerned with the performance of all subunits within the organisation. D, Goal congruence can be achieved by having a reward system tied to a manager's performance. AACSB: Reflective Difficulty: Medium Learning Objective: 12-01 Explain the benefits and costs of decentralisation 8 Which of the following is not an example of a responsibility centre? (p. 559) A. Corporate centre B. Revenue centre C. Profit centre D. Investment centre Ditfculty: Easy Learning Objective: 12-02 Define and provide examples of responsibilty centres: cost centres, revenue centres, profit centres and investment centres 9. Which of the following managers is held responsible for only the costs incurred in the subunit? (.559) A. Cost centre manager B, Revenue centre manager C, Profit centre manager D, Investment centre manager Dittculty: Easy Learning Objective: 12-02 Define and provide examples of responsibilty centres: cost centres, revenue centres, profit centres and Investment centres This documents avalate tee ochageon SEUDOCUL.COM Downloaded by kim Kim (nokimhueqahl@gmal.com)10. Which of the following managers is held accountable for the subunit's profit and invested capital? (p. 559) A, Investment centre manager B. Revenue centre manager Profit centre manager D, Sales manager Difficulty: Easy Learning Objective: 12-02 Define and provide examples of responsibilty centres: cost centres, revenue centres, profit centres and investment centres 11. _ Which of the following managers is held accountable for only the revenue attributed to a subunit? (p. 559) A. Cost centre manager B. Revenue centre manager C. Sales manager D, Investment centre manager ittcutty: Easy Learning Objective: 12-02 Define and provide examples of responsibilty centres: cast centres, revenue centres, protit centres and investment centres 12. Which of the following managers is held accountable for the profit of the subunit? (p. 559) A. Revenue centre manager B. Profit centre manager Investment centre manager D. Both B and c Difficulty: Easy Learning Objective: 12-02 Define and provide examples of responsibilty centres: cost centres, revenue centres, profit centres and investment centres Downloaded by kim Kim (nokimhueqahl@gmal.com)13. Asales department manager is an example of a: (p. 559) A. cost centre manager B, revenue centre manager C. profit centre manager D, investment centre manager Difficulty: Easy Learning Objective: 12-02 Define and provide examples of responsibilty centres: cost centres, revenue centres, profit centres and investment centres 14. An example of a profit centre is the: (p. 559) A. painting department B. sales department &. company-owned restaurant in a fast-food chain D. All of the given answers ‘AACSB: Reflective Difficulty: Meaium Graduate Attribute: Problem Solving Learning Objective: 12-02 Define and provide examples of responsibilty centres: cost centres, revenue centres, profit centres and investment centres 15. The amount charged when one business unit sells goods or services to another business unit is (p.570) called a(n): ‘A. opportunity cost B. transfer price C. standard variable cost D, residual price Ditticulty: Easy Learning Objective: 12-08 Understand why organisations have transfer pricing systems This documents avalate tee ot hage on SEUDOCU.COM Downloaded by kim Kim (nokimhueqahl@gmal.com)16. (p.573) 17. (p. 573) An opportunity cost can best be described as the: > . pricing of goods as per market trends B. direct expenses incurred in producing goods total difference in cost of production between two divisions D. the benefit that is foregone for one alternative in order to pursue another alternative Difficulty: Easy Learning Objective: 12-10 Explain the general rule that can be used to set transfer prices Fragrance Pty Ltd has two divisions: the Cologne Division and the Bottle Division. The company is decentralised and each division is evaluated as a profit centre, The Bottle Division produces bottles that can be used by the Cologne Division. The Bottle Division's variable manufacturing cost per unit is $2.00 and shipping costs are $0.10 per unit. The Bottle Division's external sales price is $3.00 per unit, No shipping costs are incurred on sales to the Cologne Division. The Cologne Division can purchase similar bottles in the external market for $2.50. The Bottle Division has sufficient capacity to meet all external market demands in addition to meeting the demands of the Cologne Division. Using the general rule, the minimum transfer price from the Bottle Division to the Cologne Division would be: AL $2.0 0 B. $2.2 0 $2.5 0 $2.9 0 ‘AACSB: Analytical Difficulty: Meoium Graduate Attribute: Problem Solving Learning Objective: 12-11 Determine appropriate transfer prices under a variety of scenarios Downloaded by kim Kim (nokimhueqahl@gmal.com)18. (p. 573) 19, (p. 573) Fragrance Pty Ltd has two divisions: the Cologne Division and the Bottle Division. The company is decentralised and each division is evaluated as a profit centre. The Bottle Division produces bottles that can be used by the Cologne Division. The Bottle Division's variable manufacturing cost per unit is $2.00 and shipping costs are $0.10 per unit. The Bottle Division's external sales price is $3.00 per unit. No shipping costs are incurred on sales to the Cologne Division. The Cologne Division can purchase similar bottles in the extemal market for $2.50. ‘Assume the Bottle Division has no excess capacity and can sell everything produced externally. Using the general rule, the transfer price from the Bottle Division to the Cologne Division would be: AL $2.1 0 B. $2.5 0 $2.9 0 D. $3.0 0 AACSB: Analytical Difficulty: Medium Graduate Attribute: Problem Solving Learning Objective: 12-11 Determine appropriate transfer prices under a variety of scenarios Fragrance Pty Ltd has two divisions: the Cologne Division and the Bottle Division. The company is decentralised and each division is evaluated as a profit centre. The Bottle Division produces bottles that can be used by the Cologne Division. The Bottle Division's variable manufacturing cost per unit is $2.00 and shipping costs are $0.10 per unit. The Bottle Division's external sales price is $3.00 per unit. No shipping costs are incurred on sales to the Cologne Division. The Cologne Division can purchase similar bottles in the external market for $2.50. Assume the Bottle Division has no excess capacity and can sell everything produced externally. What is the maximum amount Cologne Division would be willing to pay for the bottles? AL $2.0 0 B. $2.1 0 ©. $25 0 D. $29 0 ‘AACSB: Analytical Difficulty: Medium Graduate Attribute: Problem Solving Learning Objective: 12-11 Determine appropriate transfer prices under a variety of scenarios This documents avalate tee ochageon SEUDOCUL.COM Downloaded by kim Kim (hokimhueqahl@gmail. com)20. (p. 573) 21. (p. 573) Which of the following statements about transfer prices is/are true? i. When the producing division has excess capacity and the external market is imperfectly competitive, the general transfer-pricing rule and the external market price will be the same. ii, If the transfer price is set at the market price, the supplying division will be indifferent to selling internally or externally. ili. If the transfer price is set at the market price, the buying division will usually purchase goods from inside its organisation, if product specifications are met. A. iand ii and c. iand iit D, All of the given answers AACSB: Reflective Difficulty: Medium Graduate Attribute: Problem Solving Learning Objective: 12-11 Determine appropriate transfer prices under a variety of scenarios Which of the following statements about the general transfer-pricing rule is/are true? i. When the producing division has excess capacity, the transfer decision should be based on the outlay cost. ii, When the producing division has no excess capacity, the opportunity cost is the foregone contribution from the lost sale. il, If the producing division has excess capacity or the external market is imperfectly competitive, the general rule and the external market price will not yield the same transfer price, Ad Bi i C jiand iit D. All of the given answers AACSB: Reflective Difficulty: Medium Graduate Attribute: Problem Solving Learning Objective: 12-11 Determine appropriate transfer prices under a variety of scenarios Downloaded by kim Kim (hokimhueqahl@gmail.com)22. (p.572) 23. (p. 572) 24, (p.572) Which of the following statements is false, with respect to a negotiated transfer price? A, The profit of each division will depend on the negotiating skills of the managers. B, The process always results in a spirit of cooperation and unity that is desirable throughout an organisation C. The market price is usually the base line for negotiations. D. Negotiations can lead to divisiveness and competition between participating business unit managers. AACSB: Reflective Difficulty: Easy Graduate Attribute: Problem Solving Learning Objective: 12-09 Explain the various methods that can be used to determine transfer prices ‘Transfer prices should not be based on actual costs because: ‘A. inefficient producing divisions have higher costs of production, which would be passed on by buying divisions. 8. producing divisions have no incentives to control costs. inefficient units with high costs of production have no opportunity for profit. D. inefficient producing divisions have higher costs of production, which would be passed on by buying divisions AND producing divisions have no incentives to control costs. AACSB: Reflective Difficulty: Easy Graduate Attribute: Problem Solving Learning Objective: 12-09 Explain the various methods that can be used to determine transfer prices Which of the following statements about cost-based transfer prices is/are true? i. A transfer price set at standard variable cost plus a mark-up provides an incentive for the supplying business to make the transfer. ii, Absorption cost-based transfer prices are good for the company as a whole because all costs are considered. ili Transfer prices should be based on standard costs rather than actual costs since the cost of inefficiency should not be passed on A. iand ii B. fiand iii ©. iand i D. All of the given answers AACSB: Reflective Difficulty: Medium Graduate Attribute: Problem Solving Learning Objective: 12-09 Explain the various methods that can be used to determine transfer prices This documents avalate tee ochageon SEUDOCUL.COM Downloaded by kim Kim (nokimhueqahl@gmal.com)25. Transfer prices should not be based on absorption costs as this could result in suboptimal deci (p.572) by the: A. personnel division, B. competitive market. &. buying division, D. selling division, ‘AACSB: Reflective Difficulty: Easy Learning Objective: 12-09 Explain the various methods that can be used to determine transfer prices 26. Which of the following is usually achieved when the general transfer-pricing rule is implemented? (.573) A. Harmon y B. Perfect competition ©. Goal congruence D. Cost measurement AACSB: Reflective Difficulty: Easy Learning Objective: 12-11 Determine appropriate transfer prices under a variety of scenarios 27. ___ Which of the following statements is/are true? (p. $73) When a multinational company transfers goods or services between business units located in different countries: i, the tax rates of the different countries will have no effect on overall company profits. ii, the result is a moving of profits from one country to another, ili. the company will consider the tax rates of the different countries when determining the transfer price. Difficulty: Easy Learning Objective: 12-11 Determine appropriate transfer prices under a variety of scenarios Downloaded by kim Kim (nokimhueqahl@gmal.com)28. Barrister Company has two divisions: A and Z. The A Division produces a single product that can be (p. 573) sold to outside customers or to the Z Division. both divisions for 2008 are shown below: A Division: Outside customer demand Z Division demand ‘Market price per unit Variable manufacturing cost per unit Variable selling costs per unit Fixed manufacturing costs Annual capacity Z Division: Customer demand Market price per unit Variable manufacturing cost per unit (not including any transfer from A) Variable selling costs per unit Fixed manufacturing costs Annual capacity Sales forecasts, production statistics and costs for 50 000 units 35 000 units $10 $6 $1 $120 000 80 000 units 35 000 units $50 $20 $5 $350 000 35 000 units * When A Division sells to Z Division, no variable selling costs are incurred by A Division. Calculate the minimum per unit transfer price that A Division should charge Z Division in 2008, using the general transfer-pricing formula. A. $6.0 0 B. $8.5 0 ©. $72 6 D. None of the given answers AACSB: Analytical Difficulty: Difrcult Graduate Attribute: Problem Solving Learning Objective: 12-11 Determine appropriate transfer prices under a variety of scenarios ‘This documents avaiabi fee ofchaweon SEUDOCU.COM Downloaded by kim Kim (nokimhueqahl@gmal.com)29. (p.573) 30. (p.573) Polly Woodside Maritime Division purchases from an outside supplier for $52 per unit, The company's Shore Division, which has excess capacity, makes and sells the same part for external customers at a variable cost of $38 and a selling price of $58. If Shore Division commences sales to Maritime Division it will (1) use the general rule and (2) be able to reduce the variable cost on internal transfers by $4, If external sales are not affected, Shore Division should establish a transfer price of; e ones 3 B. $3 $5 8 D. None of the given answers ‘AACSB: Analytical Difficulty: Easy Graduate Attribute: Problem Solving Learning Objective: 12-11 Determine appropriate transfer prices under a variety of scenarios ‘Symonds Bendigo Division purchases from an outside supplier for $52 per unit. The company's Ballarat Division, which has no excess capacity, makes and sells the same part for external customers at a variable cost of $38 and a selling price of $58. If Ballarat commences sales to Bendigo it will (1) use the general rule and (2) be able to reduce the variable cost on internal transfers by $4, If external sales are not affected, Ballarat should establish a transfer price of: A. $3 4 B. $3 8 £85 4 D. $5 8 ‘AACSB: Analytical Difficulty: Easy Graduate Attribute: Problem Solving Learning Objective: 12-11 Determine appropriate transfer prices under a variety of scenarios Downloaded by kim Kim (nokimhueqahl@gmal.com)31, (p.573) Corporate policy at Weber Pty Ltd requires that all transfers between divisions be recorded at variable cost as a transfer price. Divisional managers have complete autonomy in choosing their sources of customers and suppliers. The Milling Division sells a product called RK2. Forty per cent of the sales of RK2 are to the Products Division, while the remainder of the sales are to outside customers. The manager of the Milling Division is evaluating a special offer from an outside customer for 10 000 units of RK2 at a per unit price of $15. If the special offer were accepted, the Milling Division would be unable to supply those units to the Products Division. The Products Division could purchase those units from another supplier for $17 per unit. Annual capacity for the Milling Division is 25 000 units. The 2008 budget information for the Milling Division, based on full ity, is presented below. Products division Outsiders Total Units 10 000 15.000 25.000 Sales $100 000 $270 000 $370 000 Variable costs (8100000) ($150 000) (6250 000) Fixed costs ($24 000) (836 000) (860 000) Assuming the Milling Division manager agrees to the special offer, what is the effect of the decision on the gross margin of Weber as a whole? A. $20 000 decrease B. $50 000 decrease C. $30 000 increase D. $50 000 increase ‘AACSB: Analytical Difficulty: Medium Graduate Attribute: Problem Solving Learning Objective: 12-11 Determine appropriate transfer prices under a variety of scenarios This documents avalate tee ochageon SEUDOCUL.COM Downloaded by kim Kim (nokimhueqahl@gmal.com)32. (.573) Corporate policy at Weber Pty Ltd requires that all transfers between divisions be recorded at variable cost as a transfer price. Divisional managers have complete autonomy in choosing their sources of customers and suppliers. The Milling Division sells a product called RK2. Forty per cent of the sales of RK2 are to the Products Division, while the remainder of the sales are to outside customers. The manager of the Milling Division is evaluating a special offer from an outside customer for 10 000 units of RK2 at a per unit price of $15. If the special offer were accepted, the Milling Division would be unable to supply those units to the Products Division. The Products Division could purchase those units from another supplier for $17 per unit. Annual capacity for the Milling Division is 25 000 units. The 2008 budget information for the Milling Division, based on full ity, is presented below. Products division Outsiders Total Units 10.000 15.000 25 000 Sales $100 000 $270 000 $370 000 Variable costs (8100000) ($150 000) ($250 000) Fixed costs ($24 000) ($36 000) (860 000) ‘Assume the company permits the division managers to negotiate a transfer price. The managers agree to a $15 transfer price adjusted to share equally the additional gross margin to Milling Division resulting from the sale to the Products Division. What is the agreed transfer price? A. $14.0 0 B. $13.5 0 ©. $12.5 0 D. $10.5 0 AACSB: Analytical Diricuty: Medium Graduate Attribute: Problem Solving Learning Objective: 12-11 Determine appropriate transfer prices under a variety of scenarios Downloaded by kim Kim (nokimhueqahl@gmal.com)33. (.573) Corporate policy at Weber Pty Ltd requires that all transfers between divisions be recorded at variable cost as a transfer price. Divisional managers have complete autonomy in choosing their sources of customers and suppliers. The Milling Division sells a product called RK2. Forty per cent of the sales of RK2 are to the Products Division, while the remainder of the sales are to outside customers. The manager of the Milling Division is evaluating a special offer from an outside customer for 10 000 units of RK2 at a per unit price of $15.00. If the special offer were accepted, the Milling Division would be unable to supply those units to the Products Division. The Products Division could purchase those units from another supplier for $17 per unit. Annual capacity for the Milling Division is 25 000 units. The 2008 budget information for the Milling Division, based on full capacity, is presented below. Products division Outsiders Total Units 10 000 15 000 25.000 Sales $100 000 $270 000 $370 000 Variable costs (8100000) ($150 000) ($250 000) Fixed costs (624 000) (836 000) ($60 000) ‘Assume that demand increases for the Milling Division. All 25 000 units can be sold at the regular price to outside customers and the Product Division's annual demand declines to 5 000 units. What transfer price would be calculated under the general transfer-pricing formula? ‘AACSB: Analytical Difficulty: Easy Graduate Attribute: Problem Solving Learning Objective: 12-11 Determine appropriate transfer prices under a variety of scenarios This documents avalate tee ochageon SEUDOCUL.COM Downloaded by kim Kim (nokimhueqahl@gmal.com)34, (.573) Corporate policy at Weber Pty Ltd requires that all transfers between divisions be recorded at variable cost as a transfer price. Divisional managers have complete autonomy in choosing their sources of customers and suppliers. The Milling Division sells a product called RK2. Forty per cent of the sales of RK2 are to the Products Division, while the remainder of the sales are to outside customers. The manager of the Milling Division is evaluating a special offer from an outside customer for 10 000 units of RK2 at a per unit price of $15. If the special offer were accepted, the Milling Division would be unable to supply those units to the Products Division. The Products Division could purchase those units from another supplier for $17 per unit. Annual capacity for the Milling Division is 25 000 units. The 2008 budget information for the Milling Division, based on full capacity, is presented below. Products division Outsiders Total Units 10 000 15.000 25.000 Sales $100 000 $270 000 $370 000 Variable costs (8100000) ($150 000) ($250 000) Fixed costs ($24 000) (836 000) ($60 000) Assume that demand increases for the Milling Division, 20 000 units can be sold at the regular price to outside customers and the Products Division's annual demand remains at 10 000 units. What is the transfer price that would be calculated under the general transfer-pricing formula? A. $12.0 0 B. $14.0 0 c. $16.0 0 D. $18.0 ° AACSB: Analytical Difficulty: Medium Graduate Attribute: Problem Solving Learning Objective: 12-11 Determine appropriate transfer prices under a variety of scenarios Downloaded by kim Kim (nokimhueqahl@gmal.com)35. (.573) 36. (p. 573) Nova Company has two divisions: OPA Division and LPA Division, The OPA Division manufactures a single product, presently operates at 95 per cent of full capacity (100 000 units) and can sell all 95 000 units produced to outside customers. This product is also a component used in a product made by the LPA Division. OPA's full cost of production is $22.50 per unit, including $4.50 of applied fixed overhead costs. The applied fixed overhead is calculated based on production of 95 000 units. OPA's management believes that production can be raised to 100 000 units without affecting cost behaviour. OPA's selling price per unit is $30 with a 10 per cent sales commission on outside sales. LPA is presently negotiating the purchase of units from OPA. LPA can purchase a comparable component outside for $29. Using the general transfer-pricing formula, calculate a transfer price for 5000 units that would be in the best interests of the company as a whole. A. $18.0 0 B. $22.5 0 $27.8 0 D, $29.0 0 ‘AACSB: Analytical Difficulty: Medium Graduate Attribute: Problem Solving Learning Objective: 12-11 Determine appropriate transfer prices under a variety of scenarios Nova Company has two divisions: OPA Division and LPA Division. The OPA Division manufactures a single product, presently operates at 95 per cent of full capacity (100 000 units) and can sell all 95, 000 units produced to outside customers. This product is also a component used in a product made by the LPA Division, OPA's full cost of production is $22.50 per unit, including $4.50 of applied fixed overhead costs, The applied fixed overhead is calculated based upon production of 95 000 units. ‘PA's management believes that production can be raised to 100 000 units without affecting cost behaviour. OPA's selling price per unit is $30 with a 10 per cent sales commission on outside sales. LPA is presently negotiating the purchase of units from OPA, LPA can purchase a comparable component outside for $29. What is the minimum acceptable transfer price for the first 5000 units from the viewpoint of OPA's management? A AACSB: Analytical Difficulty: Medium Graduate Attribute: Problem Solving Learning Objective: 12-11 Determine appropriate transfer prices under a variety of scenarios This documents avalate tee ochageon SEUDOCUL.COM Downloaded by kim Kim (hokimhueqahl@gmail. com)37. __ Division A transfers a profitable subassembly to Division B, where it is assembled into a final (@. 573) product. Division A is located in New Zealand, which has a high tax rate. Division B is located in Thailand, which has a low tax rate. Ideally, (1) which type of before tax income should each division report from the transfer and (2) what type of transfer price should be set for the subassembly? Division A Division B—_Division © Income Income Price A. low low low B, low high low . low high high D. high low high AACSB: Reflective Difficulty: Medium Graduate Attribute: Problem Solving Learning Objective: 12-11 Determine appropriate transfer prices under a variety of scenarios 38. Which of the following statements about transfer pricing is/are true? i. Income taxes and import duties are an important consideration when setting a transfer price for international companies. ii, Transfer prices cannot be used by organisations in a service industry, ili. Transfer prices are totally cost based and not market based. Bi i ©. iand D, All of the given answers AACSB: Reflective Dithcuty: Easy 39, Hamilton has no excess capacity. if the company wishes to implement the general transfer-pricing ‘p.573) rule, the opportunity cost would be equal to: A. zer ° B. the direct expenses incurred in producing the goods , the total difference in the cost of production between two divisions the contribution foregone from the lost external sale AACSB: Reflective Dittculty: Easy Learning Objective: 12-11 Determine appropriate transfer prices under a variety of scenarios Downloaded by kim Kim (nokimhueqahl@gmal.com)40. (p.573) 41. (p. 566) 42. (p. 567) Hamilton has excess capacity. If the company wishes to implement the general transfer-pricing rule, the opportunity cost would be equal to: A. zer ° B. the direct expenses incurred in producing the goods C. the total difference in the cost of production between two divisions D. the sum of the variable cost plus the fixed cost AACSB: Reflective Difficulty: Easy Graduate Attribute: Problem Solving Learning Objective: 12-11 Determine appropriate transfer prices under a variety of scenarios Business unit profit and loss statements show: A. profits for the major responsibility centres and for the organisation as a whole 8. profits by quarter for the organisation as a whole comparative profits by year for the organisation as a whole D. All of the given answers Ditfculty: Easy Learning Objective: 12-04 Prepare profit reports that highlight the financial performance of a range of business units A common cost is: not easily related to any business unit's activities 8. avoidabl e C. employees’ wages D, direct labour irtcutty: Easy Learning Objective: 12-06 Complete financial performance reports for responsibilty centres taking into account allocated costs, common costs and variances This documents avalate tee ochageon SEUDOCUL.COM Downloaded by kim Kim (nokimhueqahl@gmal.com)43. One advantage of business unit reports is that they make a distinction between business units (p. 565) and: A. business unit managers B. budget s ©. allocated costs D. cost objects Dintculty: Easy Learning Objective: 12-05 Explain the potential differences in information provided to evaluate the performance of responsiblity centres and of managers 44, _ Which of the following statements about business unit reporting is/are true? (. 566) i, Business unit reports distinguish between costs that are controllable by the business unit manager and costs that are beyond the influence of the business unit manager. ii, These statements must be presented in an absorption-costing format. ili, Business unit reporting shows profit and loss statements for the company as a whole and for its, major business units. A. iand ii B. All of the given answers Giand iii D, tiand AACSB: Reflective Difficulty: Easy Learning Objective: 12-05 Explain the potential differences in information provided to evaluate the performance of responsibility centres and of managers 45. Business unit reporting shows profit and loss statements for the company as a whole and for: (. 566) A. its major business units: B. controllable ‘expenses uncontrollable expenses D, the contribution margin ° Diftculty: Easy Leaming Objective: 12-05 Explain the potential differences in information provided to evaluate the performance of responsibility ‘centres and of managers, Downloaded by kim Kim (nokimhueqahl@gmal.com)46. __ The following information was taken from the business united profit and loss statement of Resell (©. 565) Real Estate Agents for 2008: Resell Real Sydney Tamworth North Coast Estate Division Division Division Revenues $750 000 $200 000 $225 000 $325 000 Variable operating expenses $410 000 $110 000 $120 000 $180 000 Controllable fixed expenses $210 000 $65 000 $75 000 $70 000. Fixed expenses controllable by others $60 000 $15 000 $20 000 $25 000 In addition, the company incurred common fixed costs of $18 000. What was the business unit margin of the Tamworth Division during 2008? A, ($800 0) 8. $400 0 $10 000 D, $30 000 ‘AACSB: Analytical Difficulty: Medium Graduate Attribute: Problem Solving Learning Objective: 12-05 Explain the potential differences in information provided to evaluate the performance of responsiblity centres and of managers ‘This documents avaiabi fee ofchaweon SEUDOCU.COM Downloaded by Kim Kim (hokimhueqhl@gmail.com)47. ___ The following information was taken from the business united profit and loss statement of Resell (p. 566) Real Estate Agents for 2008: Resell Real Sydney Tamworth North Coast Estate Division Division Division Revenues $750 000 $200000 $225 000 $325 000 Variable operating expenses $410 000 $119000 $120 000 $180 000 Controllable fixed expenses $210 000 $65000 $75.00 $70 000 Fixed expenses controllable by others $60 000 $15000 $20000 $25 000 In addition, the company incurred common fixed costs of $18 000. Which amount should be used to evaluate the Sydney Division as an investment of the company? AL $25 000 BL $10 000 c. $400 0 D. ($800 0) AACSB: Analytical Difculty: Medium Graduate Attribute: Problem Solving Learning Objective: 12-05 Explain the potential differences in information provided to evaluate the performance of responsibility centres and of managers Downloaded by kim Kim ( kimhuegohl@gmeil.com)48. Callahan Company consists of two divisions, Northern and Southern, During 2008, many of the (p. 565) accounting records were destroyed in a fire. The managing director has asked the accountant for information relating to 2008. The following information is available to the accountant. Total (000) Northern Division Southern Division (000) (000) Revenues $1200 $700 $500 Variable operating $720 expenses Contribution margin Controllable fixed $120 expenses Fixed expenses $150 $30 controllable by others Business unit margin $50 Common fixed costs z Profit before taxes $35 In addition, the contribution margin ratio for both divisions was the same. What were the common fixed costs (z) during 2008? A. $130 000 $45, 000 c. $70 000 D. $65 000 ‘AACSB: Analytical Difficulty: Medium Graduate Attribute: Problem Solving Leaming Objective: 12-05 Explain the potential differences in information provided to evaluate the performance of responsibility ‘centres and of managers This documents avalate tee ot hage on SEUDOCU.COM Downloaded by kim Kim (hokimhueqahl@gmail. com)49. _ The budgeted and actual amount of a responsibility centre's key financial results are shown on a: (. 566) > . responsibility report B. variance report variable cost report D. performance report Difficulty: Easy Learning Objective: 12-04 Prepare profit reports that highlight the financial performance of a range of business units 50. The data in a performance report helps managers to: (p. 566) A. consider ways of improving their performance B. use their computers make personnel changes D. eliminate spending AACSB: Reflective Ditfculty: Easy Learning Objective: 12-04 Prepare profit reports that hightight the financial performance of a range of business units 51. Which of the following are characteristics of shared service units? (. 561) i, Head office dominates ii, Usually structured as a cost centre ili, Services tend to be standardised A. iand ii B. iand iii ©. jiand ii D. None of the given answers AACSB: Reflective Difficulty: Medium Graduate Attribute: Problem Solving Learning Objective: 12-03 Understand how shared services operations and teams can enhance competitiveness Downloaded by kim Kim (nokimhueqahl@gmal.com)52. (. 561) 53. (p. 561) 54. (p. 570) Which of the following are benefits of self-managed work teams? i. Improved customer service ii, Increased goal congruence among team members ili, Increased control by top management over outcomes A.iand B. iand ©. jiand iit D. None of the given answers AACSB: Reflective Difficulty: Easy Learning Objective: 12-03 Understand how shared services operations and teams can enhance competitiveness Which of the following are risks associated with self-managed work teams? i, Deterioration in job satisfaction of team members ii, Less opportunity to improve the quality of service ili, Slower response time to customer needs A. iand ii B. iand iit ©. iiand iii D, None of the given answers AACSB: Reflective Difficulty: Easy Learning Objective: 12-03 Understand how shared services operations and teams can enhance competitiveness Which of the following are characteristics of flash reports? i, Provided daily ii. Include both financial and non-financial information ili. Comprehensive and cover the full range of performance criteria A.iand ii B. iand iii C jiand iit D. All of the given answers Ditnculty: Easy Learning Objective: 12-07 Understand how real-time reporting can enhance management decision making This documents avalate tee ochageon SEUDOCUL.COM Downloaded by kim Kim (nokimhueqahl@gmal.com)55. Which of the following might you expect to see being used as a performance measure for a profit (p. 559) centre? A. Return on investment B, Actual business unit profit compared with budget business unit profit C. Standard cost variances D. Both return on investment AND standard cost variances ‘AACSB: Reflective Difficulty: Easy Learning Objective: 12-02 Define and provide examples of responsibilty centres: cost centres, revenue centres, profit centres and 56. investment centres Which of the following might you expect to see being used as a performance measure for an (p. 559) investment centre? 57. A. Return on investment B. Actual business unit profit compared with budget business unit profit C. Actual business ut unit revenue D. Both return on investment AND actual business unit revenue compared with budget business unit revenue revenue compared with budget business AACSB: Reflective Ditfculty: Easy Learning Objective: 12-02 Define and provide examples of responsibilty centres: cost centres, revenue centres, profit centres and investment centres Which of the following might you expect to see being used as a performance measure for a cost (o. 559) centre? A. Return on investment 8. Actual business unit profit compared with budget business unit profit ©. Standard cost variances D, All of the given answers AACSB: Reflective Difficulty: Easy Learning Objective: 12-02 Define and provide examples of responsibilty centres: cost centres, revenue centres, profit centres and Investment centres Downloaded by kim Kim (nokimhueqahl@gmal.com)58. . Which of the following might you expect to see being used as a performance measure for a (p. 559) revenue centre? ‘A. Actual business unit profit compared with budget business unit profit B. Standard cost variances G. Actual business unit revenue compared with budget business unit revenue D. Both standard cost variances AND actual business unit revenue compared with budget business unit revenue ‘AACSB: Reflective Difficulty: Easy Learning Objective: 12-02 Define and provide examples of responsibilty centres: cost centres, revenue centres, profit centres and investment centres 59. Which of the following statements unambiguously describes the term ‘contribution margin’? (. 566) ‘A. Contribution of the business unit towards the company's profits 8. Revenue minus the total manufacturing costs of the business unit G. Revenue minus all variable costs of the business unit D. Revenue minus all of the business unit's costs, whether fixed or variable Ditfculty: Easy Learning Objective: 12-04 Prepare profit reports that highlight the financial performance of a range of business units 60. _ Which of the following statements best completes this sentence? ‘A cost is deemed to be (p. 566) controllable by the manager ... > . who has staff authority over that cost B. who has line authority over that cost who is next in line to the financial controller of, the firm D. who is in the best position to influence that cost in some way Dittculty: Easy Leaming Objective: 12-05 Explain the potential differences in information provided to evaluate the performance of responsiblity centres and of managers This documents avalate tee ochageon SEUDOCUL.COM Downloaded by kim Kim (nokimhueqahl@gmal.com)61. (p. 558) 62. (p. 558) 63. (p.571) Which of the following statements best completes this sentence? ‘The biggest challenge(s) facing all decentralised firms is ..." A. to reap the advantages of autonomy. B. to attempt to ensure goal congruence C. to choose the most appropriate transfer price . to reap the advantages of autonomy AND to attempt to ensure goal congruence ‘AACSB: Reflective Difficulty: Easy Learning Objective: 12-02 Explain the benefits and costs of decentralisation Which of the following is a benefit of decentralisation? A. Increased motivation of management 8. Goal congruence . Focus on the firm as a whole D. Suboptimal decision making AACSB: Reflective Ditfculty: Easy Learning Objective: 12-01 Explain the benefits and costs of decentralisation In a divisional corporate organisation, an ideal inter-divisional transfer price should: A. maximise the profits of the selling division 8. maximise the profits of the corporation . ensure goal congruence, divisional autonomy and motivation D. All of the given answers AACSB: Reflective Dittculty: Easy Learning Objective: 12-08 Understand why organisations have transfer pricing systems Downloaded by kim Kim (nokimhueqahl@gmal.com)64. What is the general rule for setting a transfer price? (p. 573) A. Additional costs of the supplying division + opportunity cost to the buying division B, Additional costs of the supplying division + opportunity cost to the supplying division C. Additional costs of the buying division + opportunity cost to the supplying division D, Always set at full-cost-plus price Dittculty: Easy Learning Objective: 12-10 Explain the general rule that can be used to set transfer prices 65. Which of the following is a problem with the use of a negotiated transfer price? (p. 572) A. The negotiations can be extremely time- consuming, B. The final transfer price may be primarily due to an individual's superior negotiation skills. It can lead to suboptimal decisions for the firm. D. All of the given answers AACSB: Reflective Dificulty: Easy Learning Objective: 12-09 Explain the various methods that can be used to determine transter prices 66. Which of the following is a problem with the use of cost-based transfer pricing? (p. 572) A, It does not lead to optimal decisions for the firm, 8. There are many definitions of cost-based transfer pricing There are potential goal-congruence problems. D. It does not lead to optimal decisions for the firm AND there are potential goal- congruence problems. AACSB: Reflective Dittculty: Easy Learning Objective: 12-09 Explain the various methods that can be used to determine transfer prices This documents avalate tee ochageon SEUDOCUL.COM Downloaded by kim Kim (nokimhueqahl@gmal.com)67. (p. 572) 68. (p. 572) 69. (p. 561) Which of the following is a key problem with the use of market-based transfer prices? A, It does not take into account the saving in cost (e.g. selling expenses, collection expenses) because of transferring internally. B. It leads to decision making that is suboptimal for the firm, C. It does not promote divisional autonomy. D, It does not show the contribution of each division to overall profit. AACSB: Reflective Difficulty: Easy Learning Objective: 12-09 Explain the various methods that can be used to determine transfer prices When the transfer price chosen by management charges another department the price that would be charged to outside customers, this type of transfer pricing is called: A. marginal cost transfer pricing 8. cost-based transfer pricing . Market-based transfer pricing D. negotiated transfer pricing Ip AACSB: Reflective Ditfculty: Easy Learning Objective: 12-09 Explain the various methods that can be used to determine transfer prices The difference between establishing a shared service unit and centralisation shared services include: i. centralised services are located at corporate headquarters; shared services are located close to internal customers ii centralised services are more efficient than shared services ili centralised services are evaluated based on service adherence to service level agreements; shared services are evaluated based on budgets and corporate objectives A. iand ii 8. ii i gi D.iand AACSB: Reflective Difficulty: Easy Learning Objective: 12-03 Understand how shared services operations and teams can enhance competitiveness Downloaded by kim Kim (nokimhueqahl@gmal.com)70. __ Which of the following information should be taken into account when using a negotiated transfer (p. 572) price method to determine transfer price? i, external market price ii savings in selling and distribution costs when transferring internally ili excess capacity in the selling division iv excess capacity in the buying division A. jiand iii B. i, iiand iii ©. i, lit and iv D. ivi, fii and iv AACSB: Reflective Difficulty: Medium Learning Objective: 12-09 Explain the various methods that can be used to determine transfer prices 71. When management is using performance reports to evaluate the economic performance of a (p. 567) business unit, which of the following costs should be considered: A, Any costs that are attributable to the business unit 8. Costs that are both attributable to the business unit AND are controllable by the business unit manager ©, Common costs and any costs that are attributable to the business unit D, Only costs controllable by the business unit manager AACSB: Reflective Difficulty: Easy Learning Objective: 12-06 Complete financial performance reports for responsibility centres taking into account allocated costs, common costs and variances 72. _ When management is using performance reports to evaluate the performance of a business unit (p. 567) manager, which of the following costs should be considered: A. Any costs that are attributable to the business unit 8. Common costs and any costs that are attributable to the business unit C. Costs controllable by the business unit manager, common costs, and any costs that are attributable to the business unit BD. Only costs controllable by the business unit manager Ip AACSB: Reflective Difculty: Easy Learning Objective: 12-06 Complete financial performance reports for responsibilty centres taking into account allocated costs, commen costs and variances This documents avalate tee ochageon SEUDOCUL.COM Downloaded by kim Kim (nokimhueqahl@gmal.com)73. Fruities Ltd has two divisions, Durian Division and Juice Division. Durian Division has an annual (p. 573) capacity of 10 000 units of durian juice concentrate. Juice Division's annual requirement of durian 74. (p. 573) juice concentrate is 8000 units. Fruities Ltd requires that divisions should purchase inputs internally where available and uses a cost-plus transfer price policy, where transfer price is set at variable cost plus 25 per cent. Therefore, Durian Division always satisfies the demand of the Juice Division first, before selling the remaining durian concentrate to external suppliers at the market price of $10 per unit. The variable cost of one unit of durian juice concentrate at Durian Division is $6. What is the difference in Durian Division's profit under the cost-plus transfer price policy and a market-price transfer price policy? A. Fruities Ltd’s profit is $20 000 lower under the cost-plus transfer pricing approach B. Fruities Ltd’s profit is $20 000 higher under the cost-plus transfer pricing approach Fruites Ltd's profit is $25 000 higher under the cost-plus transfer pricing approach . There is no difference under the two policies. ° AACSB: Analytical Difficulty: Medium Graduate Attribute: Problem Solving Learning Objective: 12-11 Determine appropriate transfer prices under a variety of scenarios Fruities Ltd has two divisions, Durian Division and Juice Division. Durian Division has an annual ty of 10 000 units of durian juice concentrate. Juice Division's annual requirement of durian juice concentrate is 8000 units, Fruities Ltd requires that divisions should purchase inputs internally where available, and uses a cost-plus transfer price policy, where transfer price is set at variable cost plus 25 per cent. Therefore, Durian Division always satisfies the demand of the Juice Division first, before selling the remaining durian concentrate to external suppliers at the market price of $10 per unit, The variable cost of one unit of durian juice concentrate at Durian Division is $6, The external demand for Durian Division's durian juice concentrate is 2000 units. What is the difference in the overall profit of Fruities Ltd under the cost-plus transfer price policy and a market-price transfer price policy? A. Fruities Ltd's profit is $20 000 lower under the cost-plus transfer pricing approach 8. Fruities Ltd's profit is $20 000 higher under the cost-plus transfer pricing approach Fruites Ltd's profit is $25 000 higher under the cost-plus transfer pricing approach D. There is no difference under the two policies. ‘AACSB: Analytical Difficulty: Medium Graduate Attribute: Problem Solving Learning Objective: 12-11 Determine appropriate transfer prices under a variety of scenarios Downloaded by kim Kim (hokimhueqahl@gmail.com)75. (p.573) 76. (p. 573) Fruities Ltd has two divisions, Durian Division and Juice Division. Durian Division has an annual capacity of 10 000 units of durian juice concentrate. Juice Division's annual requirement of durian juice concentrate is 8000 units. The variable production cost of one unit of durian juice concentrate at Durian Division is $6, but the division incurs $1 additional shipping cost per unit when selling to external suppliers. The market price for the division's durian juice concentrate is $10 per unit, and currently, the external demand for Durian Division's durian juice concentrate is 5000 units. Using the transfer pricing formula, Durian Division should charge the Juice Division: A. $6.0 0 $7.1 3 $9.0 0 D, $10.0 0 ‘AACSB: Analytical Difficulty: Medium Graduate Attribute: Problem Solving Learning Objective: 12-11 Determine appropriate transfer prices under a variety of scenarios Fruities Ltd has two divisions, Durian Division and Juice Division. Durian Division has an annual capacity of 10 000 units of durian juice concentrate, Juice Division's annual requirement of durian juice concentrate is 8000 units. There is no external market for durian juice concentrate; however, the Durian Division can use its facilities to manufacturer prune paste, which is a very popular product with unlimited external demand, at $13 per unit, The variable production cost of one unit of durian juice concentrate at Durian Division is $6, and the variable production cost of one unit of prune paste is $8. Durian division also incurs $1 additional shipping cost per unit when selling prune paste to external suppliers. Using the transfer pricing formula, what is the per unit opportunity cost of selling one unit of durian juice concentrate to Juice Division? > NauBsvon ‘AACSB: Analytical Dificulty: Medium Graduate Attribute: Problem Solving Learning Objective: 12-11 Determine appropriate transfer prices under a variety of scenarios This documents avalate tee ochageon SEUDOCUL.COM Downloaded by kim Kim (nokimhueqahl@gmal.com)77. Fruities Ltd has two divisions, Durian Division and Juice Division, Durian Division has an annual (p. 573) capacity of 10 000 units of either juice concentrate or fruit paste. Usually, Durian Division produces durian juice concentrate for the Juice Division. Juice Division's annual requirement of durian juice concentrate is 8000 units. There is no external market for durian juice concentrate; however, the Durian Division can use its facilities to manufacturer prune paste, which is a very popular product with unlimited external demand. The market price for prune paste is $13 per unit. The variable production cost of one unit of durian juice concentrate at Durian Division is $6, and the variable production cost of one unit of prune paste is $8. Durian division also incurs $1 additional shipping cost per unit when selling prune paste to external suppliers, Using the transfer pricing formula, what is the per unit transfer price selling one unit of durian juice concentrate to Juice Division? A$ 6 B.S 8 ast 0 D. $1 1 AACSB: Analytical Difficulty: Difficult Graduate Attribute: Problem Solving Learning Objective: 12-11 Determine appropriate transfer prices under a variety of scenarios 78. A:strategic business unit i (p. 559) A. Acost centre 8. Either a revenue centre or a profit centre Either a revenue centre or an investment centre, D. Either a profit centre or an investment centre, birtcutty: Easy Learning Objective: 12-02 Define and provide examples of responsibilty centres: cast centres, revenue centres, profit centres and investment centres 79. Performance reports (p. 567) The performance reports generated by a responsibility accounting system form a hierarchy of ‘performance reports’, Explain what is meant by this term. AACSB: Communication Difficulty: Easy Graduate Attribute: Communication Learning Objective: 12-06 Complete financial performance reports for responsibilty centres taking into account allocated costs, ‘common costs and variances Downloaded by kim Kim (nokimhueqahl@gmal.com)80. If a manager were responsible for a division's performance and activities, the division would have (p. 559) to be classified as a cost centre. FALSE AACSB: Reflective Ditticulty: Easy Learning Objective: 12-02 Define and provide examples of responsibilty centres: cost centres, revenue centres, profit centres and a1. investment centres Although shared service units are generally established as profit centres it is often acceptable if a (p. 561) zero profit is achieved. 82. TRUE ‘AACSB: Reflective Difficulty: Medium Learning Objective: 12-03 Understand how shared services operations and teams can enhance competitiveness When a contribution margin format is used for reporting, expenses are grouped according to the (p. 566) functions (e.g. sales and distribution, financial) carried out by the organisation FALSE Difficulty: Easy Learning Objective: 12-04 Prepare profit reports that highlight the financial performance of a range of business units 83. Transfer pricing is a system established internally to facilitate units being set up as profit centres. (570) TRUE ‘AACSB: Reflective Difficulty: Easy Learning Objective: 12-08 Understand why organisations have transfer pricing systems 84. Service level agreements are used within organisations to establish which services are to be (.579) provided and set the transfer price for these services. 85. TRUE AACSB: Reflective Difficulty: Easy Learning Objective: 12-12 Understand the nature of service level agreements When using cost-based transfer prices, actual costs should be used in preference to standard (p.572) costs. 86. FALSE AACSB: Reflective Difficulty: Easy Learning Objective: 12-09 Explain the various methods that can be used to determine transfer prices The costs arising from activities that benefit two or more units are generally referred to as (p. 567) controllable costs. FALSE Difficulty: Easy Leaming Objective: 12.06 Complete financial performance reports for responsibilty centres taking into account allocated costs, This documents avalate tee ochageon SEUDOCUL.COM Downloaded by kim Kim (nokimhueqahl@gmal.com)common costs and variances 87. When organisational structures move to a flatter structure, it is anticipated that the levels of (p. 561) management are reduced which in turn allows the organisation to react quicker to potential opportunities. TRUE AACSB: Reflective Difficulty: Easy Learning Objective: 12-03 Understand how shared services operations and teams can enhance competitiveness 88. When responsibility centres are established as revenue centres, one way of measuring ‘». 559) performance in these centres is to evaluate the return on investment. FALSE AACSB: Reflective Difficulty: Easy Learning Objective: 12-02 Define and provide examples of responsibilty centres: cast centres, revenue centres, profit centres and investment centres 89. When a company manager's behaviour is aimed at achieving the goals of an organisation, the (p. 558) company can be confident of goal congruence, TRUE irtculty: Easy Learning Objective: 12-01 Explain the benefits and costs of decentralisation Downloaded by kim Kim (nokimhueqahl@gmal.com)Chapter 12 Testbank Summary Category AACSB: Analytical AACSB: Communication AACSB: Reflective Difficulty; Difficult Difficulty: Easy Difficulty: Medium Graduate Attribute: Communication Graduate Attribute: Problem Solving Learning Objective: 12-01 Explain the benefits and costs of decentralisation Learning Objective: 12-02 Define and provide examples of responsibility centres: cost centres, revenue ce ntres, profit centres and investment centres Learning Objective: 12-03 Understand how shared services operations and teams can enhance competitiv eness Learning Objective: 12-04 Prepare profit reports that highlight the financial performance of a range of busi ness units Learning Objective: 12-05 Explain the potential differences in information provided to evaluate the perfor mance of responsibility centres and of managers Learning Objective: 12-06 Complete financial performance reports for responsibility centres taking into acc unt allocated costs, common costs and variances Learning Objective: 12-07 Understand how real-time reporting can enhance management decision making Learning Objective: 12-08 Understand why organisations have transfer pricing systems Learning Objective: 12-09 Explain the various methods that can be used to determine transfer prices Learning Objective: 12-10 Explain the general rule that can be used to set transfer prices Learning Objective: 12-11 Determine appropriate transfer prices under a variety of scenarios Learning Objective: 12-12 Understand the nature of service level agreements This documentis avaiable tee ofcraraeon GLUDOCU.COM Downloaded by kim Kim (nokimhueqahl@gmal.com) # of Questi 20 45 63 24 29 15 6 10 24