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Question;80.;A;primary goal of transfer pricing is to;A.;Agree on a price for external sales.;B.;Obtain a high transfer price for the;purchasing unit.;C.;Obtain a high transfer price for the;selling unit.;D.;Motivate decision-makers to act in the;best interests of the organization.;E.;Minimize recordkeeping costs.;81.;All;of the following are true of market-based transfer prices except;A.;They generally motivate the correct;economic decision.;B.;They can be determined for all goods and;services transferred internally.;C.;They may lead to goods and services;purchased externally by the purchasing unit.;D.;To the extent they exist, they are;objective.;E.;They provide an independent valuation;for internal transfers.;82.;All of the following are true of;cost-based transfer prices except;A.;They generally promote optimal;decision-making from the standpoint of the organization as a whole.;B.;They may be based either on actual costs;or standard (i.e., budgeted) costs.;C.;Their use may not provide proper;motivation for cost control on the part of the producing division.;D.;They may not provide proper guidance;when opportunity costs exist.;E.;Generally speaking, such cost data are;readily available.;83.;The;greatest advantage of using a negotiated transfer price is;A.;It is generally the most efficient;method of determining transfer prices.;B.;This may be the most practical approach;when conflicts exist between selling and buying divisions.;C.The;method produces transfer prices that are acceptable under international;financial reporting standards.;D.;Tax problems are avoided because the;method is considered "arm's-length.;E.;It is required for federal income tax;purposes.;84.;The;most likely result of using a negotiated transfer price is that;A.;The resulting decision reflects purely;economic considerations.;B.;More than the optimum number of units;will be transferred between divisions.;C.;Fewer than the optimum number of units;will be transferred between divisions.;D.;It takes away from the buying and;selling units the ultimate responsibility for determining the transfer price.;E.;The end result might reflect the;relative bargaining skills of the negotiating managers.;85.;All;of the following represent a way of calculating ROI (return on investment) for;a division except;A.;(Operating income ? sales) ? (sales ?;investment).;B.;Operating income ? divisional;investment.;C.;Return on sales (ROS) ? Inventory;turnover.;D.;Operating income ? divisional assets.;86.;The primary limitation of using Economic;Value Added (EVA?) to evaluate the financial performance of investment centers;is;A.;Complexity of the calculation.;B.;Dysfunctional long-term investment;decisions that can be motivated by focusing on EVA?.;C.;Failure to include a measure of invested;capital.;D.;Inability to use EVA? to benchmark;against competitor organizations.;E.;Inability to align managerial incentives;with ownership interests.;88.;EVA?;(economic value added);A.;Is another name for return on investment;(ROI).;B.Is;considered an inferior method of evaluating the short-term financial;performance of an investment center.;C.Encourages investment center managers to accept;new investments that have an ROI greater than the existing ROI of the center.;D Of $100,000 for an;investment center indicates that the investment center earned $100,000 of;after-tax. profit for the company as a whole.;E.Of;$100,000 for an investment center indicates that the invest center's economic;profit for the period was $100,000.;89.;Which;of the following specifications for calculating EVA? is correct?;A.;EVA? = economic profit.;B.;EVA? = economic profit ? equity;equivalents.;C.;EVA? = NOPAT ? investment, where NOPAT =;net operating profit after (cash) taxes.;D.EVA?;= NOPAT - Imputed charge on EVA? capital, where NOPAT = net operating profit;after (cash) taxes;E.;EVA? = reported operating profit, after;tax - imputed charge on average investment in the subunit.;90.;Which;of the following statements regarding the calculation of EVA? is not;true?;A.;Adjusted accounting data are used to;estimate EVA?.;B.;The operating approach and the financing;approach lead to identical estimates of EVA?.;C.;EVA? NOPAT represents after-tax cash;operating income, after depreciation;D.;EVA? NOPAT represents after-tax cash;operating income, before depreciation;E.The divisional cost of capital (minimum rate of;return) is used to impute a charge on capital invested in the division during;the period.;91.;A;segment of an organization is referred to as an investment center if it has;A;Authority to make decisions affecting;the major determinants of profit, including the power to choose.;its markets and sources of supply.;BAuthority to make decisions affecting;the major determinants of profit, including the power to choose. its markets and sources of supply and;significant control over the amount of invested capital.;C.Authority;to make decisions over the most significant costs of operations, including the;power to choose sources of supply.;D.;Authority to provide specialized support;to other units within the organization.;E.;Responsibility for developing markets;for and selling the output of the organization.;92.;A;company earning a profit can increase its return on investment (ROI) by;A.;Increasing sales revenue and operating;expenses by the same dollar amount.;B.;Decreasing sales revenues and operating;expenses by the same percentage.;C.;Increasing investment and operating;expenses by the same dollar amount.;D.;Increasing sales revenues and operating;expenses by the same percentage.;E.;Decreasing investment and sales by the;same percentage.;93. Which;one of the following statements pertaining to the return on investment (ROI) as;a performance measure is incorrect?;A.;When average age of assets differs;substantially across segments of a business, the use of ROI may not;be appropriate.;B ROI relies on;financial measures that are capable of being independently verified while other;forms of. performance measures are subject to;manipulation.;C The use of ROI may;lead managers to reject capital investment projects that can be justified using. discounted cash flow (DCF) decision models.;DThe use of ROI can make;it undesirable for a skillful manager to take on trouble-shooting assignments. such as those involving turning around;unprofitable divisions.;E.The;use of ROI can lead managers to emphasize the ROI of a division over the;profitability of the parent organization.;94. The;basic objective of the residual income (RI) approach to performance measurement;of a business unit considered an investment center is to have the investment;center maximize its;A.;Return on investment.;B.;Imputed interest rate charge.;C.;Cash flows.;D.;Cash flows in excess of a desired;minimum amount.;E.;Operating income in excess of a desired;minimum return.;95.;In a decentralized organization, the;best option for measuring the performance of subunits is through the use of;A.;Profit centers.;B.;Revenue centers.;C.;Product centers.;D.;Cost centers.;E.;Investment centers.;96. Residual;income (RI) may be a better measure for financial performance evaluation of an;investment center than return on investment (ROI) because;A.;Problems associated with measuring the;investment base are eliminated.;B.;Desirable investment opportunities will;not be neglected by high-return divisions.;C.;Only the gross book value of assets;needs to be calculated.;D.;Returns do not increase as assets are;depreciated.;E.;The arguments over the implicit cost of;interest are largely eliminated.;97.;The;most likely result of a negotiated transfer price is that it;A.;Takes away the ultimate responsibility;of the resulting transfer price from the two parties.;B.;Decreases sub-unit (i.e., divisional);autonomy.;C.;Can be costly and time-consuming to;implement.;D Generally results in;transferring more than the optimum number of units between the buying and. selling divisions of the organization.;E.;Provides performance indicators that are;independent of the negotiating skills of divisional managers.;98.;Return;on investment (ROI) can be directly increased by;A.;Increasing sales.;B.;Increasing the minimum desired rate of;return (i.e., divisional cost of capital).;C.;Decreasing operating assets.;D.;Decreasing operating income.;E.;Decreasing asset turnover (AT).;99.;The major criticism of using return on;investment (ROI) for evaluating the performance of business units consider;investment centers is that ROI;A.Gives;managers of profitable business units an incentive to reject projects that;would benefit the organization as a whole.;B.;It is not easily understood by managers.;C.;Usually uses a blended rate of capital;as the required rate of return.;D.Has;a long-term (strategic) focus and therefore is not useful in terms of;evaluating short-term performance.;E.;Favors large units (investment centers).;100.Assume that an organization's weighted-average;cost of capital (minimum rate of return) is 8% and that Division A currently;has a 12% return on investment (ROI). The manager of Department A, who is;evaluated on the basis of divisional ROI, would most likely accept an;investment that is expected to return;A.;More than 8%.;B.;More than 12%.;C.;More than 8% but less than 12%.;D.;Less than 12%.;Impossible;to tell without further information.


Paper#50880 | Written in 18-Jul-2015

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