Responsibility Accounting
B. TRANSFER PRICING A. maximize the transfer price
B. minimize the transfer price
THEORIES: C. maintain goal congruence between the divisions and the entire
Nature D. none of the above
5. Transfer prices are charges for
A. transportation of goods outside units of an organization. 2. The objective(s) of transfer pricing are
B. goods sold by subunits to outside customers. A. to motivate managers
C. goods exchanged among subunits. B. to provide an incentive for managers to make decisions cons
D. goods stored within a subunit. (i.e., goal congruence)
C. to provide a basis for fairly rewarding the managers
23. A transfer price is a price charged D. all of the above
A. to outside customers
B. when one division sells its goods or services to another division 4. A transfer pricing system should satisfy which of the following objec
C. by the selling division to the buying division when outside market does not exist A. accurate performance evaluation C. goal congruen
D. a and b B. preservation of divisional autonomy D. all of the abov
24. Transfer prices are 34. The market price method satisfy a key objective of transfer pricing,
A. necessary to calculate costs in a cost, profit, or investment center A. objectivity C. consistency
B. preferred by buying divisions are the lowest possible B. usability D. reliability
C. do not make any difference for the company's bottom-line no matter what number is used
D. all of the above Irrelevant costs
29. Which item is usually not relevant to a decision by a divisional ma
36. Which of the following is a key factor to consider in deciding whether to make internal price to meet a price offered to another division by an outside supp
transfers, and, if so, in setting the transfer price? A. opportunity cost
A. Is there an outside supplier? B. variable manufacturing costs
B. Is the seller's variable cost less than the market price/ C. fixed divisional overhead
C. Is the selling unit operating at full capacity? D. the price offered by the outside supplier
D. All of the above are key factors.
Minimum & Maximum Transfer Price
32. From the standpoint of the company, the important question in transfer pricing is General rule
A. what is fair to the divisions 9. The general rule in establishing transfer prices consistent with ec
B. how to determine the profit of the divisions the
C. whether or not the transfer should take place A. differential cost plus opportunity cost if goods are transferred in
D. when the transfer should be made B. actual cost plus opportunity cost if goods are transferred intern
C. standard cost plus opportunity cost if goods are transferred inte
Objectives D. all of the above.
1. The objective of a transfer pricing system should be to
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, Responsibility Accounting
Seller’s standpoint (minimum price) D. all of the above.
26. The minimum transfer price should be:
A. opportunity cost for selling division 27. Transfer prices are set by:
B. opportunity cost for buying division A. cost or cost plus C. negotiation
C. opportunity cost for the company as a whole B. market prices D. all of the abov
D. only variable cost for the selling division
35. Which of the following are transfer pricing models?
14. A selling division produces components for a buying division that is considering accepting a A. Variable cost method C. Market cost m
special order for the products it produces. The selling division has excess capacity. The B. Average price method D. All of the abov
minimum price the selling division would be willing to accept is the
A. selling division’s variable costs Market price
B. buying division’s outside purchase price 10. If a firm operates at capacity, the transfer price should be the:
C. price that would allow the buying division to cover its incremental cost of the special order A. external market price. C. actual cost.
D. price that would allow the selling division to maintain its current ROI B. differential cost. D. standard cost.
25. The minimum transfer price from the seller's standpoint is 12. To avoid waste and maximize efficiency when transferring prod
A. market price when excess capacity exists competitive economy, a large diversified corporation should base
B. market price when excess capacity does not exist A. full cost C. replacement c
C. incremental costs when excess capacity exists B. variable cost D. market price
D. b and c
13. If an intermediate market exists, the optimal transfer price is the:
Buyer’s standpoint (maximum price) A. outlay cost for producing the goods.
7. Generally, the outside market price would be B. opportunity cost of not selling to the outside market.
A. a floor for internal transfer price. C. market price.
B. a ceiling for internal transfer price. D. variable costs associated with producing the product.
C. both a and b
D. none of the above. 16. If there is no excess capacity, the transfer price is often
A. market price
Methods of transfer pricing B. opportunity cost plus incremental cost
3. The basic methods used in transfer pricing are C. variable cost or variable cost plus profit
A. variable or full costs C. market price or negotiated price D. a or b
B. dual prices D. all of the above
20. Market pricing approach in transfer pricing
8. An example of a transfer price policy is A. helps to preserve unit autonomy
A. market price. B. provides incentive for the selling unit to be competitive with out
B. actual cost plus markup. C. may be the most practical approach when there is significant c
C. standard cost plus markup. D. both a and b
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, Responsibility Accounting
Variable costing
28. The best transfer price is usually 21. Variable costing method of transfer pricing is
A. actual cost plus a percentage markup A. easy to implement
B. a reliable market price B. intuitive and easily understood
C. budgeted full cost plus a percentage markup C. more logical when there is excess capacity
D. budgeted variable cost plus a percentage markup D. all of the above
30. Market-based transfer prices are best for the 22. A company may consider using variable costs in transfer pricing wh
A. company when the selling division is operating below capacity. A. excess capacity because variable costs would stay the same
B. company when the selling division is operating at capacity. B. no excess capacity because variable costs would not stay the
C. buying division if it is operating at capacity. C. excess capacity because fixed costs would stay the same
D. buying division. D. no excess capacity because fixed costs would stay the same
33. Which transfer price is ideal for the company when the selling division is at capacity? Full cost
A. Market price 18. If full cost is used in transfer pricing, it is preferable to use
B. Incremental cost A. standard full cost because the buyer does not wish to be stuck
C. Budgeted full cost B. standard full cost because the seller does not wish to pass alon
D. Actual variable cost plus a percentage profit C. actual full cost because the buyer is well-advised to deal
anticipated costs
Actual costs D. actual full costs because the seller is well-advised to dea
6. Disadvantages of transfer prices based on actual cost include: anticipated costs
A. reducing the incentive of managers of supplying divisions to control their costs.
B. passing on efficiencies or inefficiencies of supplying divisions to receiving divisions. Negotiated
C. both a and b. 11. Negotiated transfer prices are appropriate when:
D. none of the above. A. there are cost savings to the selling division.
B. there is no external market price.
15. Which of the following types of transfer prices do not encourage the selling division to be C. the internal market price reflects a bargain price.
efficient? D. all of the above.
A. transfer prices based upon market prices
B. transfer prices based upon actual costs 17. A negotiated transfer pricing system is set up where
C. transfer prices based upon standard costs A. the two sides cannot agree on a price and the difference
D. transfer prices based upon standard costs plus a markup for profit absorbed by the home office
B. a ready market price is not available and the two sides must
31. The worst transfer-pricing method is to base the prices on price
A. market prices C. budgeted variable costs C. the buyer buys at variable cost and the seller only sells at full c
B. budgeted total costs D. actual total costs D. the two sides agree to use a cost basis for transfer pricing
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B. TRANSFER PRICING A. maximize the transfer price
B. minimize the transfer price
THEORIES: C. maintain goal congruence between the divisions and the entire
Nature D. none of the above
5. Transfer prices are charges for
A. transportation of goods outside units of an organization. 2. The objective(s) of transfer pricing are
B. goods sold by subunits to outside customers. A. to motivate managers
C. goods exchanged among subunits. B. to provide an incentive for managers to make decisions cons
D. goods stored within a subunit. (i.e., goal congruence)
C. to provide a basis for fairly rewarding the managers
23. A transfer price is a price charged D. all of the above
A. to outside customers
B. when one division sells its goods or services to another division 4. A transfer pricing system should satisfy which of the following objec
C. by the selling division to the buying division when outside market does not exist A. accurate performance evaluation C. goal congruen
D. a and b B. preservation of divisional autonomy D. all of the abov
24. Transfer prices are 34. The market price method satisfy a key objective of transfer pricing,
A. necessary to calculate costs in a cost, profit, or investment center A. objectivity C. consistency
B. preferred by buying divisions are the lowest possible B. usability D. reliability
C. do not make any difference for the company's bottom-line no matter what number is used
D. all of the above Irrelevant costs
29. Which item is usually not relevant to a decision by a divisional ma
36. Which of the following is a key factor to consider in deciding whether to make internal price to meet a price offered to another division by an outside supp
transfers, and, if so, in setting the transfer price? A. opportunity cost
A. Is there an outside supplier? B. variable manufacturing costs
B. Is the seller's variable cost less than the market price/ C. fixed divisional overhead
C. Is the selling unit operating at full capacity? D. the price offered by the outside supplier
D. All of the above are key factors.
Minimum & Maximum Transfer Price
32. From the standpoint of the company, the important question in transfer pricing is General rule
A. what is fair to the divisions 9. The general rule in establishing transfer prices consistent with ec
B. how to determine the profit of the divisions the
C. whether or not the transfer should take place A. differential cost plus opportunity cost if goods are transferred in
D. when the transfer should be made B. actual cost plus opportunity cost if goods are transferred intern
C. standard cost plus opportunity cost if goods are transferred inte
Objectives D. all of the above.
1. The objective of a transfer pricing system should be to
393
, Responsibility Accounting
Seller’s standpoint (minimum price) D. all of the above.
26. The minimum transfer price should be:
A. opportunity cost for selling division 27. Transfer prices are set by:
B. opportunity cost for buying division A. cost or cost plus C. negotiation
C. opportunity cost for the company as a whole B. market prices D. all of the abov
D. only variable cost for the selling division
35. Which of the following are transfer pricing models?
14. A selling division produces components for a buying division that is considering accepting a A. Variable cost method C. Market cost m
special order for the products it produces. The selling division has excess capacity. The B. Average price method D. All of the abov
minimum price the selling division would be willing to accept is the
A. selling division’s variable costs Market price
B. buying division’s outside purchase price 10. If a firm operates at capacity, the transfer price should be the:
C. price that would allow the buying division to cover its incremental cost of the special order A. external market price. C. actual cost.
D. price that would allow the selling division to maintain its current ROI B. differential cost. D. standard cost.
25. The minimum transfer price from the seller's standpoint is 12. To avoid waste and maximize efficiency when transferring prod
A. market price when excess capacity exists competitive economy, a large diversified corporation should base
B. market price when excess capacity does not exist A. full cost C. replacement c
C. incremental costs when excess capacity exists B. variable cost D. market price
D. b and c
13. If an intermediate market exists, the optimal transfer price is the:
Buyer’s standpoint (maximum price) A. outlay cost for producing the goods.
7. Generally, the outside market price would be B. opportunity cost of not selling to the outside market.
A. a floor for internal transfer price. C. market price.
B. a ceiling for internal transfer price. D. variable costs associated with producing the product.
C. both a and b
D. none of the above. 16. If there is no excess capacity, the transfer price is often
A. market price
Methods of transfer pricing B. opportunity cost plus incremental cost
3. The basic methods used in transfer pricing are C. variable cost or variable cost plus profit
A. variable or full costs C. market price or negotiated price D. a or b
B. dual prices D. all of the above
20. Market pricing approach in transfer pricing
8. An example of a transfer price policy is A. helps to preserve unit autonomy
A. market price. B. provides incentive for the selling unit to be competitive with out
B. actual cost plus markup. C. may be the most practical approach when there is significant c
C. standard cost plus markup. D. both a and b
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, Responsibility Accounting
Variable costing
28. The best transfer price is usually 21. Variable costing method of transfer pricing is
A. actual cost plus a percentage markup A. easy to implement
B. a reliable market price B. intuitive and easily understood
C. budgeted full cost plus a percentage markup C. more logical when there is excess capacity
D. budgeted variable cost plus a percentage markup D. all of the above
30. Market-based transfer prices are best for the 22. A company may consider using variable costs in transfer pricing wh
A. company when the selling division is operating below capacity. A. excess capacity because variable costs would stay the same
B. company when the selling division is operating at capacity. B. no excess capacity because variable costs would not stay the
C. buying division if it is operating at capacity. C. excess capacity because fixed costs would stay the same
D. buying division. D. no excess capacity because fixed costs would stay the same
33. Which transfer price is ideal for the company when the selling division is at capacity? Full cost
A. Market price 18. If full cost is used in transfer pricing, it is preferable to use
B. Incremental cost A. standard full cost because the buyer does not wish to be stuck
C. Budgeted full cost B. standard full cost because the seller does not wish to pass alon
D. Actual variable cost plus a percentage profit C. actual full cost because the buyer is well-advised to deal
anticipated costs
Actual costs D. actual full costs because the seller is well-advised to dea
6. Disadvantages of transfer prices based on actual cost include: anticipated costs
A. reducing the incentive of managers of supplying divisions to control their costs.
B. passing on efficiencies or inefficiencies of supplying divisions to receiving divisions. Negotiated
C. both a and b. 11. Negotiated transfer prices are appropriate when:
D. none of the above. A. there are cost savings to the selling division.
B. there is no external market price.
15. Which of the following types of transfer prices do not encourage the selling division to be C. the internal market price reflects a bargain price.
efficient? D. all of the above.
A. transfer prices based upon market prices
B. transfer prices based upon actual costs 17. A negotiated transfer pricing system is set up where
C. transfer prices based upon standard costs A. the two sides cannot agree on a price and the difference
D. transfer prices based upon standard costs plus a markup for profit absorbed by the home office
B. a ready market price is not available and the two sides must
31. The worst transfer-pricing method is to base the prices on price
A. market prices C. budgeted variable costs C. the buyer buys at variable cost and the seller only sells at full c
B. budgeted total costs D. actual total costs D. the two sides agree to use a cost basis for transfer pricing
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