Which of the following is a characteristic of a management control system?
A) It aids and coordinates the process of making decisions.
B) It encourages short-term profitability and maximizing net income.
C) It helps individuals throughout the organization
A
Which of the following is a part of the formal management control system?
A) mutual commitments among the members of the organization
B) the quality system which provides information about defective products
C) shared values and loyalties among the member
B
Which of the following is true of goal congruence?
A) It exists when the management's strategy is in line with the shareholders' requirements.
B) It exists when individuals and groups work toward achieving the organization's goals.
C) It exists when both
B
A well-designed management control system uses information from ________.
A) internal sources only as they are the most reliable sources of information
B) external sources only as they are more dynamic and future oriented
C) both internal and external sou
C
If an oil refinery used refinery down-time as a Balanced Scorecard control measure, it would represent the ________ perspective.
A) financial
B) customer
C) internal business process
D) learning and growth
C
If a computer manufacturer used its common stock price as a Balanced Scorecard control measure, it would represent the ________ perspective.
A) financial
B) customer
C) internal business process
D) learning and growth
A
Line managers supervising individual refineries are concerned with ________.
A) obtaining information about the firm's opportunity costs
B) obtaining information about the firm's sunk costs
C) obtaining information about the firm's equipment downtime and
C
________, in the perspective of an effective management control, is the extent to which managers strive or endeavor in order to achieve a goal.
A) Efficiency
B) Effectiveness
C) Effort
D) Variance
C
The formal management control system includes the shared values, loyalties, and mutual commitments among members of the organization.
False
Management control systems is designed only for top level managers and is not applicable to line managers.
False
Of the four perspectives of the balanced scorecard the customer perspective refers to employee satisfaction, absenteeism, information systems capabilities, and number of processes with real-time feedback.
False
The human resources systems is a part of the formal management control systems of an organization.
True
The management accounting system is an informal management control system which provide information about the firm's costs, revenues, and income.
False
The formal management control system includes shared values, loyalties, and mutual commitments among members of the company, company culture, and norms about acceptable behavior for managers and other employees.
False
Effort refers to physical exertion, such as a worker producing at a faster rate, but excludes non-physical aspects like acumen and diligence of a worker.
False
An organization should design its management control system independently of its strategies, so that the system is not affected by change of strategies in future.
False
Goal congruence exists when individuals work toward achieving one goal, and groups work toward achieving a different goal.
False
Management control systems should be designed to support the organizational responsibilities of individual managers.
True
Effort in terms of management control systems is defined in terms of physical exertion such as a worker producing at a faster rate.
False
Effective management control systems should also motivate managers and other employees.
True
What is goal congruence
Goal congruence exists when individuals and groups work toward achieving an organization's
goals�that is, managers working in their own best interest take actions that align with the overall goals of top management
________ means minimum constraints and maximum freedom for managers at the lowest levels of an organization to make decisions and to take actions.
A) Total centralization
B) Use of market-based transfer pricing
C) Total decentralization
D) Use of negotiat
C
An advantage of decentralization is that it ________.
A) creates greater responsiveness to local needs
B) focuses manager's attention on the organization as a whole
C) does not result in a duplication of activities
D) reduces the cost of gathering informa
A
Which of the following is an advantage of decentralization?
A) It creates greater responsiveness to local needs.
B) It focuses managers' attention on the organization as a whole.
C) It does not result in a duplication of activities.
D) It encourages subop
A
Which of the following is a benefit of decentralization?
A) It creates greater responsiveness to local needs.
B) It helps in rasing capital at a local level.
C) It relieves top managers of accountability.
D) It eliminates the need for enforcing goal congr
D
________ occurs when a decision's benefits for one subunit is more than offset by the costs to the organization as a whole.
A) Suboptimal decision making
B) Independent decision making
C) Congruent decision making
D) Departmental decision making
A
Which of the following statements is true of decentralization?
A) A decentralized structure does not empower employees to handle customer complaints directly.
B) A decentralized structure forces top management to lose some control over the organization.
C
B
Which of the following areas lends themselves to the concept of decentralization?
A) dividend decisions
B) long-term financing
C) product advertising
D) strategic planning
C
Which of the following is a drawback of decentralizing a multinational company?
A) It may lead to increased exchange rate risk.
B) It may result in lack of control and results in increasing risk.
C) It creates less responsiveness to the needs of a subunit
B
Which of the following is a responsibility center to measure the revenues and costs of subunits in centralized or decentralized companies?
A) investment center
B) environmental center
C) exchange policy center
D) taxation rebate center
A
Decentralization in multinational companies may lead to lack of control.
True
An investment center is always a decentralized subunit.
False
In a profit center, the manager is accountable for investments, revenues, and costs.
False
Decisions regarding sources of long-term financing are best made at subunit level as the subunit has local knowledge and can leverage it in negotiations.
False
Surveys indicate that decisions made most frequently at the corporate level are related to sources of supplies and products to manufacture.
False
The labels profit center and cost center are dependent on the degree of centralization or decentralization in a company.
False
Incongruent decision making occurs when individuals and groups work toward achieving the organization's goals even if departmental performance is adversely affected.
False
A product may be passed from one subunit to another subunit in the same organization. The product is known as a(n) ________.
A) interdepartmental product
B) intermediate product
C) subunit product
D) transfer product
B
Which of the following best describes a transfer price?
A) It is the price charged by an organization when it transfer goods to another organization in lieu of services provided by it.
B) It is the price that is to be used while calculating revenue from s
D
A transfer-pricing method leads to goal congruence when ________.
A) there is a price difference in different markets due to market inefficiencies
B) managers do no act for their own best interest and work for the long-term best interest of the manager's
C
Which of the following is true of transfer pricing?
A) It creates costs for the selling subunit.
B) It creates revenues for the buying subunit.
C) It helps top managers evaluate the performance of individual subunits.
D) It makes managers' information-pro
C
Transfer-pricing systems enable managers to focus on maximizing the performance of their subunits.
True
The product or service transferred between subunits of an organization is called an intermediate product.
True
The transfer price creates revenues for the selling subunit and costs for the buying subunit affecting each subunit's operating income.
True
) Negotiated transfer prices are often employed when ________.
A) market prices are stable
B) market prices are volatile
C) market prices change by a regular percentage each year
D) goal congruence is not a major objective
B
The costs used in cost-based transfer prices ________.
A) are actual costs
B) are budgeted costs
C) can either be actual or budgeted costs
C
Which of the following is true of hybrid transfer prices?
A) The cost used in hybrid transfer prices is always the actual cost.
B) The cost used in hybrid transfer prices is always the budgeted cost.
C) They take into account both cost and market informat
C
To reduce the excessive focus of subunit managers on their own subunits, many companies compensate subunit managers on the basis of ________.
A) both the operating income earned by their respective subunits and the company as a whole
B) both the investing
A
The choice of a transfer-pricing method has minimal effect on the allocation of company-wide operating income among divisions.
False
Transfer prices do not affect managers whose compensation is directly dependent on an organization's operating income because transfer prices affect only divisional profits and not the organization's profit.
False
Hybrid transfer prices take into account both cost and market information.
True
Hybrid transfer prices can be arrived at through negotiations.
True
Negotiated transfer prices are often employed when market prices are stable.
False
The cost used in cost-based transfer prices can be actual cost or budgeted cost.
True
Which of the following markets is said to exist when there is a homogeneous product with many sellers?
A) monopoly market
B) oligopoly market
C) monopolistic market
D) perfect market
D
A perfectly competitive market exists when ________.
A) individual buyers or sellers can affect prices by their own actions
B) market prices reach well above their historical averages due to demand outstripping supply
C) market prices drop well below thei
D
A benefit of using a market-based transfer price is that the ________.
A) profits of the transferring division are sacrificed for the overall good of the corporation
B) profits of the division receiving the products are sacrificed for the overall good of
C
When an industry has excess capacity, market prices may drop well below their historical average. If this drop is temporary, it is called ________.
A) distress prices
B) dropped prices
C) low-average prices
D) substitute prices
A
Market-based transfer prices are helpful when ________.
A) the product is specialized
B) the internal product is different from the products available externally in terms of its quality
C) the interdependencies of subunits are minimal
D) the markets are n
C
If the distress price is used as the transfer price, ________.
A) the selling division will show a loss because the distress price will not exceed the full cost of the division
B) the buying division will show a loss because the distress price will not ex
A
When companies do not want to use market prices or find it too costly, they typically use ________ prices, even though suboptimal decisions may occur.
A) average-cost
B) full-cost
C) long-run cost
D) short-run average cost
B
An advantage of using budgeted costs for transfer pricing among divisions is that ________.
A) overall corporate profitability is usually higher
B) it usually provides a basis for optimal decision making
C) the divisions know the transfer price in advance
C
A company should use cost-based transfer prices ________.
A) when a company's product is specialized
B) the market for the intermediate product is perfectly competitive
C) the interdependencies of subunits are minimal
D) there is no benefit from market-ba
A
A transfer price based on the full cost plus a markup may lead to suboptimal decisions because ________.
A) it leads the buying division to regard the fixed costs and the markup of the selling division as a variable cost
B) it leads the buying division to
A
Cost based transfer prices are the only price that a firm should use when transferring goods from one subunit to another subunit.
False
A major advantage of using actual costs for transfer prices is that often inefficiencies are NOT passed along to the receiving division.
False
The full cost plus a markup transfer-pricing method can sometimes lead to goal incongruence
True
Cost-based transfer prices are helpful when markets are not perfectly competitive.
True
A firm using a cost-based transfer price will never help have the selling division be able to achieve goal congruence.
False
1) An advantage of a negotiated transfer price is the ________.
A) close relationship between the negotiated price and the market price
B) negotiated transfer price preserves divisional autonomy
C) negotiations usually do not require much time and energy
B
The range over which two divisions will negotiate a transfer price is ________.
A) between the supplying division's variable cost and the market price of the product
B) between the supplying division's variable cost and its full cost of the product
C) it
A
The transfer-pricing method that reduces the goal-congruence problems associated with a pure cost-plus-based transfer-pricing method is the ________.
A) dual pricing
B) market pricing
C) single pricing
D) distress pricing
A
Which of the following is a disadvantage of using negotiated transfer price?
A) It requires each division manager to put forth effort to increase division operating income.
B) Negotiated transfer prices take away the divisional autonomy as prices depend o
C
When there is unused capacity, ________.
A) the transfer-price range lies between the its variable cost per unit and the higher of its contribution or price at which the product is available from external suppliers
B) the transfer-price range lies between
C
Which of the following is a disadvantage of dual pricing?
A) It strongly preserves the autonomy of divisions, and the division managers are motivated to put forth effort to increase the operating income of their respective divisions, causing inefficiencie
C
A disadvantage of using negotiated prices is that the time and energy spent by managers haggling over transfer prices make the method too costly.
True
Dual pricing uses two separate transfer-pricing methods to price each transfer from one subunit to another.
True
One concern with dual pricing is that it leads to disputes about which price should be used when computing the taxable income of subunits located in different tax jurisdictions.
True
Dual pricing insulates managers from the realities of the marketplace because costs, not market prices, affect the revenues of the supplying division.
True
Which of the following transfer-pricing methods always achieves goal congruence?
A) a market-based transfer price
B) a cost-based transfer price
C) a negotiated transfer price
D) full-cost plus a standard profit margin
C
In the context of transfer pricing, which of the following represents the maximum contribution margin forgone by the selling subunit if the product or service is transferred internally?
A) sub-optimal transfer price
B) notional loss
C) compromise sale
D)
D
Which of the following denotes minimum transfer price?
A) Minimum transfer price = Incremental cost per unit incurred up to the point of transfer + Opportunity cost per unit to the selling subunit
B) Minimum transfer price = Total cost per unit incurred u
A
The minimum transfer price equals ________.
A) opportunity costs less the additional outlay costs
B) opportunity costs times 125% plus the additional outlay costs
C) opportunity costs divided by the additional outlay costs
D) incremental costs plus opport
D
In markets that are not perfectly competitive, ________.
A) the selling division will not have any unused capacity
B) companies can increase their capacity utilization only by decreasing their prices
C) minimum transfer price will equal the incremental co
B
In analyzing transfer prices, the ________.
A) buyer will not willingly purchase a product for less than the incremental costs incurred to manufacture the product internally
B) seller will not willingly sell a product for less than the incremental costs i
B
Minimum transfer price can be arrived at by adding incremental cost per unit incurred up to the point of transfer with the markup required.
False
In markets that are not perfectly competitive, companies can increase their capacity utilization only by decreasing their prices
True
The additional cost of producing and transferring the product or service is called variable manufacturing cost.
False
If the selling subunit is operating at capacity, the opportunity cost of transferring a unit internally rather than selling it externally is equal to the market price minus the variable cost.
True
One of the problems in using one set of accounting records for tax reporting and another set of records for internal management reporting is that ________.
A) it is illegal as well as unethical to do so
B) the tax authorities may suspect manipulation of r
B
Which of the following helps in avoiding costly transfer-pricing disputes between taxpayers and tax authorities?
A) transfer price redressal panel
B) grievance redressal forum
C) transfer price agreements
D) advanced pricing agreements
D
Which of the following taxes does transfer pricing affect?
A) customs duties
B) dividend taxes
C) corporate taxes
D) property taxes
A
Which of the following sections of U.S. Internal Revenue Code govern how multinationals can set transfer prices for tax purposes?
A) Section 328
B) Section 382
C) Section 428
D) Section 482
D
Global Giant, a multinational corporation, has a producing subsidiary in a low tax rate country and a marketing subsidiary in a high tax country. If Global Giant wants to minimize its worldwide tax liability, we would expect Global Giant to ________.
A) s
D
The tariffs and customs duties governments levy on imports of products into a country also affect the transfer pricing practices of multinationals.
True
A company may choose to keep one set of accounting records for tax reporting and a second set for internal management reporting.
True
Companies have an incentive to lower the transfer prices of products they are exporting into a country to reduce the tariffs and customs duties charged on those products.
True