Responsibility Accounting and Performance Measures Paper 11

1

Multinational transfer prices are sometimes influenced by restrictions that some countries place on the repatriation of profits to the parent firm. Companies can minimize the effect of such restrictions by






2

Division A of Teltriton produces a product that can be sold to outside customers or sold to Division B for further processing. If the performance of managers is evaluated based on division profitability, what transfer pricing method will the manager of Division A request?






3

The price that one division of a company charges another division for goods or services provided is called the






4

The most fundamental responsibility center affected by the use of market-based transfer prices is a(n)






5

In theory, the optimal method for establishing a transfer price is






6

A carpet manufacturer maintains a retail division consisting of stores stocking its brand and other brands and a manufacturing division that makes carpets and pads. An outside market exists for carpet padding material in which all padding produced can be sold. The proper transfer price for padding transferred from the manufacturing division to the retail division is






7

One department of an organization, Final Assembly, is purchasing sub components from another department, Materials Fabrication. The price that will be charged to Final Assembly by Materials Fabrication is to be determined. Outside market prices for the sub components are available. Which of the following is the most correct statement regarding a market-based transfer price?






8

The Eastern division sells goods internally to the Western division of the same company. The quoted external price in industry publications from a supplier near Eastern is $200 per ton plus transportation. It costs $20 per ton to transport the goods to Western. Eastern’s actual market cost per ton to buy the direct materials to make the transferred product is $100. Actual per ton direct labor is $50. Other actual costs of storage and handling are $40. The company president selects a $220 transfer price. This is an example of






9

Companies with decentralized, autonomous divisions that sell their goods and services internally to other divisions of the company as well as externally in competitive markets have to establish transfer prices for the goods and services transferred internally among divisions. Generally, upper management has established such operating criteria for managing the divisions as goal congruence, sub unit autonomy, and a sustained high level of management effort. An approach consistent with the above criteria would be to set the transfer price equal to the






10

Manhattan Corporation has several divisions that operate as decentralized profit centers. At the present time, the Fabrication Division has excess capacity of 5,000 units with respect to the UT-371 circuit board, a popular item in many digital applications. Information about the circuit board follows.
Market price $48
Variable selling/distribution costs on external sales 5
Variable manufacturing cost 21
Fixed manufacturing cost 10
Manhattan’s Electronic Assembly Division wants to purchase 4,500 circuit boards either internally, or else use a similar board in the marketplace that sells for $46. The Electronic Assembly Division’s management feels that if the first alternative is pursued, a price concession is justified, given that both divisions are part of the same firm.
The best process for Manhattan to determine the price ultimately charged by the Fabrication Division to the Assembly Division for the circuit board is to






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