CHAPTER 18 Which of the following is more characteristic of a decentralized than a centralized The firm’s environment is stable. ANSWER: more elaborate
accounting control systems. ANSWER: d EASY Transfer pricing is primarily incurred in foreign corporations exporting their products. ANSWER: EASY Costs of decentralization include
all of the following except 3. c b EASY In a decentralized company in which divisions may buy goods from one another, the increase the consolidated value of inventory. ANSWER: d EASY 18–1 18–2 5. Chapter 18 When the majority of authority is maintained by top management personnel, the a. centralized. ANSWER: EASY responsibility accounting ANSWER: a EASY In a
responsibility accounting system, costs are classified into categories on the basis of d. fixed and variable costs. ANSWER: a What term identifies an accounting system in which the operations of the business are 7. Responsibility Accounting and Transfer Pricing in Decentralized Organizations d EASY When used for performance evaluation, periodic internal reports based on a a. be related to the organization chart. ANSWER: b EASY Chapter 18 9. Responsibility Accounting and Transfer Pricing in Decentralized Organizations A ___________ is a document that reflects the revenues and/or costs that are under the quality audit report ANSWER: EASY cost ANSWER: c EASY In evaluating the performance of a profit center manager, he/she should be evaluated on all revenues and costs that can be traced directly to the unit. the same costs and revenues on which the unit is evaluated. ANSWER: b The cost object under the control of a manager is called a(n)
__________________ 11. 18–3 b EASY If a division is set up as an autonomous profit center, then goods should not be in at a cost-based transfer price. out at a cost-based transfer price. ANSWER: b MEDIUM 18–4 13. Chapter 18 Performance evaluation measures
in an organization affect the motivation of subunit managers to transact with one another. ANSWER: MEDIUM goal congruence. ANSWER: c EASY A major benefit of cost-based transfers is
that it is easy to agree on a definition of cost. ANSWER: a A management decision may be beneficial for a given profit center, but not for the entire 15. Responsibility Accounting and Transfer Pricing in Decentralized Organizations c MEDIUM An internal reconciliation account is not required for internal transfers based on market value. ANSWER: d MEDIUM Chapter 18 17. Responsibility Accounting and Transfer Pricing in Decentralized Organizations The most valid reason for using something other than a full-cost-based transfer price is typically more costly to implement. ANSWER: MEDIUM variable cost. ANSWER: b MEDIUM A transfer pricing system is also known as investment center accounting. ANSWER: b To avoid waste and maximize efficiency when transferring products among divisions in 19. 18–5 d EASY The maximum of the transfer price negotiation range is determined by
the buying division. ANSWER: a EASY 18–6 21. Chapter 18 The presence of idle capacity in the selling division may increase the incremental costs of production in the selling division. ANSWER: MEDIUM system is very complex to be the most fair to the buying and selling units ANSWER: c MEDIUM With two autonomous division managers, the price of goods transferred between the divisions needs to be approved
by corporate management. ANSWER: a Which of the following is a consistently desirable characteristic in a transfer pricing 23. Responsibility Accounting and Transfer Pricing in Decentralized Organizations b EASY The minimum potential
transfer price is determined by incremental costs in the selling division. ANSWER: a EASY Chapter 18 25. Responsibility Accounting and Transfer Pricing in Decentralized Organizations As the internal transfer price is increased, overall
corporate profits increase. ANSWER: accounts receivable and CGS. ANSWER: d EASY In an internal transfer, the buying division records the transaction by debiting
accounts receivable. ANSWER: EASY In an internal transfer, the selling division records the event by crediting 27. c b EASY Top management can preserve the autonomy of division managers and encourage an selecting performance evaluation measures that are
consistent with the performance. ANSWER: a MEDIUM 18–7 18–8 29. Chapter 18 To evaluate the performance of individual departments, interdepartmental transfers of a equal to the market price of the product. ANSWER: EASY responsibility accounting. ANSWER: d MEDIUM External factors considered in setting transfer prices in multinational
firms typically do the corporate income tax rates in host countries of foreign subsidiaries. ANSWER: 32. a Allocating service department costs to revenue-producing departments is an alternative 31. Responsibility Accounting and Transfer Pricing in Decentralized Organizations c MEDIUM Corporate taxes and tariffs are particular transfer-pricing concerns of investment centers. ANSWER: b EASY Chapter 18 33. Responsibility Accounting and Transfer Pricing in Decentralized Organizations When managers attempt to cause actual
results to conform to planned results, this is efficiency. ANSWER: b EASY Which of the following would not be considered a critical success factor? quality ANSWER: 18–9 d EASY The costs of service departments can be
assigned to other divisions through the use of cost centers. goal congruence. ANSWER: d MEDIUM 18–10 Chapter 18 Responsibility Accounting and Transfer Pricing in Decentralized Organizations Use the following information for questions 36–40. $50 Presently the Computer Division purchases no chips from the Computer Chips Division, but Assume that next month’s costs and levels of operations in the Computer and Computer $50 ANSWER: c MEDIUM Assume that next month’s costs and levels of operations in the Computer and Computer $50 ANSWER: b MEDIUM Chapter 18 38. Responsibility Accounting and Transfer Pricing in Decentralized Organizations Two possible transfer prices (for 4,000 units) are under consideration by the two the transfer price rather than $40. $20,000 larger ANSWER: d MEDIUM If a transfer between the two divisions is arranged next period at a price
(on 4,000 units rise by $20,000 compared to the prior period. ANSWER: 18–11 d MEDIUM Assume, for this question only, that the Computer Chip Division is selling all that it can no effect ANSWER: c MEDIUM 18–12 Chapter 18 Responsibility Accounting and Transfer Pricing in Decentralized Organizations Use the following
information for questions 41–43. $70 Assume that the Carburetor Division would not incur any variable selling costs on units that What is the maximum of the transfer price range for a transfer between the two d. $106 ANSWER: MEDIUM What is the minimum of the transfer price range for a transfer between the two $96 ANSWER: b a MEDIUM If the two divisions agree to transact with one another, corporate profits will drop by $30,000 per month. ANSWER: c MEDIUM Chapter 18 Responsibility Accounting and Transfer Pricing in Decentralized Organizations 18–13 Use the following information for questions 44–47. month follows: $250,000 Top-level managers are trying to determine how a transfer price can be set on a transfer of A transfer price based on variable cost will be set at ___________ per unit. $0.50 ANSWER: MEDIUM A transfer price based on full production cost would be set at ___________ per unit. $0.75 ANSWER: c a MEDIUM A transfer price based on market price would be set at ___________ per unit. $2.10 ANSWER: b MEDIUM 18–14 47. Chapter 18 If
the Plumbing Division is operated as an autonomous investment center and its d. $0.75. ANSWER: Responsibility Accounting and Transfer Pricing in Decentralized Organizations d MEDIUM A company has two divisions, A and B, each operated as a profit center. A charges B $30 A is planning to raise its transfer price to $50 per unit. Division B can purchase units at producing units for B. Division A cannot increase its sales to outsiders. From the outside vendors ANSWER: d MEDIUM A service department includes which of the following? Payroll no ANSWER: Production EASY Chapter 18 50. Responsibility Accounting and Transfer Pricing in Decentralized Organizations Indirect costs should be allocated for all of the following reasons except to motivate managers. compare alternatives for decision making. ANSWER: MEDIUM purchasing ANSWER: d EASY All of the following objectives are reasons to allocate service department costs to provide information on cost recovery. ANSWER: c A service department provides specific functional tasks for other internal
units. Which 52. 18–15 c MEDIUM All of the following objectives are reasons that service department allocations can instill a consideration of support costs in production managers. determine divisional profitability. ANSWER: d MEDIUM 18–16 54. Chapter 18 Which of the following is a reason for allocating service department costs and thereby provides for cost recovery ANSWER: Internal units ANSWER: MEDIUM b External units After service department costs have been allocated, what is the final step in determining determine direct material cost determine total service department costs ANSWER: d Service departments provide functional tasks for which of the following? 56. Responsibility Accounting and Transfer Pricing in Decentralized Organizations b EASY Which of the following is not an objective for computing full cost? to reflect production’s “fair share” of costs to provide for cost recovery ANSWER: c MEDIUM Chapter 18 58. Responsibility Accounting and Transfer Pricing in Decentralized Organizations A rational and systematic allocation base for service department costs should reflect the the ability of revenue-producing departments to bear the allocated costs. ANSWER: 59. MEDIUM step method ANSWER: b EASY Which service department cost allocation method assigns costs directly to revenueproducing areas with no other intermediate cost pools or
allocations? step method ANSWER: d Which of the following is not a method for allocating service department costs? 60. 18–17 d EASY The overhead allocation method that allocates service department costs without step
method. ANSWER: b EASY 18–18 62. Chapter 18 Which service department cost allocation method assigns indirect costs to cost objects step method ANSWER: EASY algebraic method direct method ANSWER: c EASY Which service department cost allocation method assigns indirect costs to cost objects Algebraic method ANSWER: a Which service department cost allocation method utilizes a “benefits-provided” c. 64. Responsibility Accounting and Transfer Pricing in Decentralized Organizations c Step method EASY Which of the following methods of assigning indirect service department costs step method ANSWER: a EASY Chapter 18 66. Responsibility Accounting and Transfer Pricing in Decentralized Organizations The most accurate method for allocating service department costs is the step method. ANSWER: EASY Benefits received yes ANSWER: b Fairness Causal relationships MEDIUM To identify costs that relate to a specific product, an allocation base should be
chosen does not have a cause-and-effect relationship. has a cause-and-effect relationship. ANSWER: c The criteria that are most often used to decide on allocation bases are? 68. 18–19 b EASY The fixed costs of service departments should be allocated
to production departments actual short-run utilization based on predetermined rates. ANSWER: d MEDIUM 18–20 70. Chapter 18 Which service department cost allocation method provides for reciprocal
allocation of algebraic method direct method ANSWER: b. EASY considers all interrelationships of the departments and reflects these relationships ANSWER: a EASY Which service department cost allocation method considers all interrelationships of the step method ANSWER: a The algebraic method 72. Responsibility Accounting and Transfer Pricing in Decentralized Organizations c EASY An automotive company has three divisions. One division manufactures new d. total
labor hours incurred in the divisions. ANSWER: a MEDIUM Chapter 18 74. Responsibility Accounting and Transfer Pricing in Decentralized Organizations 18–21 The allocation of general overhead control costs to operating departments can be least income of a product or functional unit. costs for making management’s decisions. ANSWER: b MEDIUM Use the following information for questions 75–84. Employees Asset Value Using the direct method, what amount of Administration costs is allocated to A (round $216,000 ANSWER: Direct Costs a MEDIUM Using the direct method, what amount of Personnel costs is allocated to B (round to the $50,000 ANSWER: d MEDIUM 18–22 77. Chapter 18 Using the direct method, what amount of Administration costs is allocated to C (round to the nearest
dollar)? $576,000 ANSWER: MEDIUM $72,973 ANSWER: b MEDIUM Using the step method, what amount of Administration costs is allocated to A (round to b. $72,973 ANSWER: a Using the step method, what amount of Administration costs is
allocated to Personnel 79. Responsibility Accounting and Transfer Pricing in Decentralized Organizations c MEDIUM Using the step method, what amount of Administration costs is allocated to B (round to the nearest dollar)? $72,973 ANSWER: a MEDIUM Chapter 18 81. Responsibility Accounting and Transfer Pricing in Decentralized Organizations Using the step method, what amount of Administration costs is allocated to C (round to $389,189 ANSWER: MEDIUM $213,964 ANSWER: c MEDIUM Assume that Administration costs have been allocated and the balance in Personnel is $213,964 $430,000 ANSWER: a Assume that Administration costs have been allocated and the balance in Personnel is 83. 18–23 d MEDIUM Assume that Administration costs have been allocated and the balance in Personnel is $213,964 ANSWER: c MEDIUM 18–24 Chapter 18 Responsibility Accounting and Transfer Pricing in Decentralized Organizations Use the following information for questions 85–90. Admin/Per. Employees Hours of use Assume that Data Processing provides more service than Administration/Personnel. Using the direct method, what amount of Data Processing costs is allocated to X (round $180,000 ANSWER: MEDIUM Using the direct method, what amount of Data Processing costs is allocated to Y (round $158,475 ANSWER: a c MEDIUM Using the direct method, what amount of Data Processing costs is allocated to Z (round $211,765 ANSWER: d MEDIUM Chapter 18 88. Responsibility Accounting and Transfer Pricing in Decentralized Organizations Assume that Data Processing costs have been allocated and the balance in c. $257,143 ANSWER: a MEDIUM Assume that Data Processing costs have been allocated and the balance in $225,000 ANSWER: 18–25 b MEDIUM Assume that Data Processing costs have been allocated and the balance in $200,000 ANSWER: c MEDIUM |