BUSINESS 200108 Chapter 12—Financial performance measures and transfer pricing exam

Chapter 12—Financial performance measures
and transfer pricing
Question 1. When managers within the various subunits of an organisation are committed to achieving
the goals set by top management, the result is:
A*. Goal congruence.
B. Planning and control.
C. Responsibility accounting.
D. Delegation of decision making.
E. B and C.


Question 2. Responsibility accounting:
A. Fosters goal congruence.
B. Involves using the various concepts and tools used by management accountants for planning and
control.
C. Is used to measure the performance of people.
D. Is used to measure the performance of subunits.
E*. All of the above.

Question 3. In order to promote goal congruence, a management accounting system uses
A. Responsibility centres.
B*. Autonomy.
C. Decentralisation.
D. A database.
E. Centralisation.


Question 4. The biggest challenge in making a decentralised organisation function effectively is:
A. To earn maximum profits through fair practices.
B. To minimise organisational losses.
C. Taking advantage of the specialised knowledge and skills of a manager.
D*. Obtaining goal congruence among the organisation’s autonomous managers.
E. All of the above.


Question 5. Which of the following is not a benefit of decentralisation?
A. Specialised information about the local markets.
B. Managerial training.
C. Motivation.
D. Relief to upper-level management.
E*. Narrow focus on the manager’s own subunit.

Question 6. 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.
B. A centralised organisation.
C. A corporation.
D. Responsibility accounting.
E. None of the above.


Question 7. What is a negative consequence of decentralisation?
A. Narrow focus.
B. Managers may tend to ignore the consequences of their actions on the organisation’s other subunits.
C. Services may be duplicated.
D. Suboptimal decisions may be made.
E*. All of the above.

,Question 8. Which of the following statement(s) is/are false?
A. Goal congruence is difficult to achieve because managers are often unaware of the effects of
their decisions on the organisation’s subunits.
B. The development of performance measures to evaluate a subunit and its managers will help
achieve goal congruence.
C*. 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.
E. None of the above statements is false.


Question 9. Which of the following is not an example of a responsibility centre?
A. Cost centre.
B. Revenue centre.
C. Profit centre.
D. Investment centre.
E*. Corporate centre.


Question 10. Which of the following managers is held responsible for only the costs incurred in the
subunit?
A*. The cost centre manager.
B. The revenue centre manager.
C. The profit centre manager.
D. The investment centre manager.
E. None of the above.


Question 11. Which of the following managers is held accountable for the subunit’s profit and
invested capital?
A. The cost centre manager.
B. The revenue centre manager.
C. The profit centre manager.
D. The sales manager.
E*. The investment centre manager.


Question 12. Which of the following managers is held accountable for only the revenue attributed to a
subunit?
A. The cost centre manager.
B*. The revenue centre manager.
C. The profit centre manager.
D. The sales manager.
E. The investment centre manager.


Question 13. Which of the following managers is held accountable for the profit of the subunit?
A. The cost centre manager.
B. The revenue centre manager.
C. The profit centre manager.
D. The investment centre
manager. E*. C and D.


Question 14. A sales department manager is an example of a:
A. Cost centre manager.
B*. Revenue centre manager.
C. Profit centre manager.
D. Investment centre manager.
E. None of the above.

, Question 15. An example of a profit centre is the:
A. Painting department.
B. Aales department.
C*. Company-owned restaurant in a fast-food chain.
D. Reservation department.
E. All of the above.


Question 16. The amount charged when one business unit sells goods or services to another business
unit is called a(n):
A. Opportunity cost.
B*. Transfer price.
C. Standard variable cost.
D. Residual price.
E. Target price.


Question 17. An opportunity cost can best be described as the:
A. Pricing of goods as per market trends.
B. Direct expenses incurred in producing goods.
C. Total difference in cost of production between two divisions.
D. Total contribution.
E*. The benefit that is foregone for one alternative in order to pursue another alternative.


Question 18. Calculate the variable cost, given the following information:
Selling price $10.00
Variable cost of production $5.75
Variable cost of transportation $0.25
Contribution margin $4.00
A. $2.00.
B. $5.75.
C. $4.25.
D*. $6.00.
E. $4.00.


Question 19. Assuming there is no excess capacity, determine the opportunity cost given the following
information:
Selling price $15.00
Variable cost of production $10.60
Variable cost of transportation
$0.55
Variable cost of production including packaging
$11.00 A. $4.00.
B. $11.15.
C. $8.45.
D. $4.40.
E*. $3.45.


Question 20. From the following information, determine the transfer price under the general pricing
rule:
Opportunity cost of the transfer $6.80
Variable cost of production $10.40
Variable cost of transportation $0.60
Variable cost of production including packaging $12.00
A. $12.00.
B*. $19.40.