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Question;62.;The;primary limitation of a full-cost based transfer pricing system is that;A;The supplying and purchasing divisions;are more likely to make decisions that are inconsistent with the.;goals of the organization as a whole.;B.There;will be little incentive on the part of the supplying manager to supply goods;and services efficiently.;C.;Managers may spend too much time;negotiating the transfer price.;D.;Managers may find that the transfer;price is difficult to compute.;E.;Such transfer prices are not currently;allowed for federal income tax purposes.;67.;A company has two divisions, X and Y;each operated as an investment center. X charges Y $55 per unit for each unit;transferred to Y. Other data are;X is;planning to raise its transfer price to $65 per unit. Division Y can purchase;units at $50 each from outsiders, but doing so would idle X's facilities now;committed to producing units for Y. Division;X cannot;increase its sales to outsiders. From the perspective of the short-term;profit position of the company as a whole, from which source should;Division Y acquire the units?;A.;Outside vendors.;B.;Division X, but only at the variable;cost per unit.;C.;Division X, but only until fixed costs;are covered, then should purchase from outside vendors.;D.;Division X, in spite of the increased;transfer price.;E.;It is not possible to tell without;additional information.;68. Division;A, which is operating at capacity, produces a component that it currently sells;in a competitive market for $25 per unit. At the current level of production;the fixed cost of producing this component is $8 per unit and the variable cost;is $10 per unit. Division B would like to purchase this component from Division;A. The price that Division A should charge Division Y for this component is;A.;$10 per unit.;B.;$18 per unit.;C.;$20 per unit.;D.;$25 per unit.;E.;$35 per unit.;69.;A company established a branch to sell;automobile seat covers. The company purchases these covers and stores them in a;warehouse. The covers are then shipped from the warehouse to both the home;office and the new branch, FOB destination. Home office management is;responsible for setting the transfer price of the covers charged to the branch.;Per-unit costs of the covers are;According to the general;transfer-pricing formula given in the text, the minimum transfer price;that home office should charge the branch is;A.;$62.50.;B.;$63.50.;C.;$66.00.;D.;$68.00.;E.;$69.00.;Selected data from Division A of;Green Company are as follows;70.;Division;A's return on investment (ROI) is;A.;1.8%.;B.;7.5%.;C.;12.0%.;D.;20.0%.;E.;48.0%.;71.;Division;A's return on sales (ROS) is;A.;1.8%.;B.;7.5%.;C.;12.0%.;D.;20.0%.;E.;48.0%.;72.;Division;A's asset turnover (AT) is (rounded);A.;0.72.;B.;1.00.;C.;1.58.;D.;1.67.;E.;2.08.;73.;Division;A's residual income (RI) is;A.;$15,000.;B.;$24,000.;C.;$30,000.;D.;$36,000.;E.;$54,000.;74.;If;the minimum rate of return was 10%, Division A's residual income (RI) would be;A.;$15,000.;B.;$24,000.;C.;$30,000.;D.;$36,000.;E.;$45,000.;75.;In;the context of transfer pricing, dual pricing is;A.;Never used when numerous conflicts exist;between two units.;B.;The simultaneous use of two or more;transfer pricing methods.;C.;The use of two or more transfer pricing;methods by the buyer only.;D.;Not recommended because of negative;behavioral consequences.;E.;Not recommended because it conflicts;with current income tax requirements.;76. Expropriation;occurs when the government in which a foreign company's investment assets are;located;A.;Takes ownership and control of those;assets.;B.;Charges additional taxes for the use of;those assets.;C.;Uses domestic currency to purchase those;assets.;D.;Uses foreign currency to purchase those;assets.;E.;Does not allow transnational transfers;of currency.;77.;One;advantage of the return on investment (ROI) metric is that it;A.;Can use the minimum rate of return to;adjust for differences in risk.;B.;Can use a different minimum rate of;return for different types of assets.;C.;Eliminates goal congruency problems;particularly for better-performing divisions.;D.;Requires disclosure under current;international financial reporting standards.;E.;Can be compared to interest rates and to;rates of return on alternative investments.;78. One;approach to measuring the short-term financial performance of a business unit;considered an investment center is return on investment (ROI). ROI is expressed;as operating income of the investment center;A.;Divided by the current year's capital;expenditures plus cost of capital.;B.;Minus imputed interest charged for the;use of invested capital by the investment center.;C.;Divided by fixed assets.;D.;Divided by total assets used by the;investment center.;E.;Minus the asset turnover (AT) of the;investment center.;79.;The;two approaches for estimating EVA? are;A.;The operating approach and the capital;approach.;B.;The financing approach and the operating;approach.;C.;The discounted approach and the;financing approach.;D.;The operating approach and the;discounted approach.;E.;The residual income approach and the;operating-income approach.;80.;A fully-owned subsidiary of a;multinational company reports its return on investment (ROI) periodically;during the year. This unit of the company, for performance evaluation purposes;is likely considered a(n);A.;Profit center.;B.;Revenue center.;C.;Investment center.;D.;Operating center.;E.;Cost center.

 

Paper#51033 | Written in 18-Jul-2015

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