finance data bank
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:
Selected data from Division A of Green Company are as follows:
70. Division A's return on investment (ROI) is:
71. Division A's return on sales (ROS) is:
72. Division A's asset turnover (AT) is (rounded):
73. Division A's residual income (RI) is:
74. If the minimum rate of return was 10%, Division A's residual income (RI) would be:
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.