Ch 22

Question 0

Motivation

Answer 0

Desire to attain selected goal and pursuit of goal

Question 1

Management control system

Answer 1

Means of gathering and using information to aid and

Coordinate planning/control decisions throughout org.

Question 2

Goal congruence

Answer 2

When individuals and groups work toward achieving

Organization’s goals

Question 3

Effort

Answer 3

Extent to which managers strive to achieve goal

Question 4

Decentralization

Answer 4

Freedom for managers at lower levels of organization

To make decisions

Question 5

Autonomy

Answer 5

Degree of freedom to make decisions

Question 6

Subunit

Answer 6

Any department or division of organization

Question 7

Benefits of decentralization 5?

Answer 7

1 greater responsiveness to needs of subunit’s
Customers, suppliers and employees
2 faster decision making in subunits
3 increased motivation of subunit managers
4 assists management development/learning
5 broadens reach of top management

Question 8

Disadvantages of decentralization 4?

Answer 8

1 suboptimal decision making
2 focuses manager's attention of subunit rather than whole
Company
3 results in duplication of output
4 results in duplication of activities

Question 9

Suboptimal decision making

Answer 9

Decisions that benefit one subunit is offset by costs

To whole organization

Question 10

Decentralization: duplication of output

Answer 10

When subunits produce similar product

Question 11

4 types of responsibility centers

Answer 11

1 cost center
2 revenue center
3 profit center
4 investment center

Question 12

Cost center

Answer 12

Manager is accountable for costs only

Question 13

Revenue center

Answer 13

Manager is accountable for revenues only

Question 14

Profit center

Answer 14

Manager is accountable for revenues and costs

Question 15

Investment center

Answer 15

Manager is accountable for investments, revenues and costs

Question 16

Transfer price

Answer 16

Price one subunit charges for product or service supplied

By subunit of same organization

Question 17

Intermediate product

Answer 17

Product or service transferred btw subunits of organization

Question 18

4 criteria to evaluate transfer pricing?

Answer 18

1 transfer prices promote goal congruence
2 induce managers to exert high effort
3 helps top management evaluate performance of individual
Subunits
4 if decentralization favored by top management, autonomy
Preserved by transfer prices

Question 19

3 categories for determining transfer prices?

Answer 19

1 Market based transfer prices

2 cost based transfer prices

3 hybrid transfer prices

Question 20

Market based transfer prices

Answer 20

Price of similar product or service

Internal or external price subunit charges to outside
customers

Question 21

Cost based transfer prices

Answer 21

Transfer price based on cost of producing product in

Question

Question 22

Hybrid transfer prices

Answer 22

Take into account both cost and market info

Question 23

Perfectly competitive market

Answer 23

Homogenous product with buying equal to selling prices

and no individual buyers or sellers can affect prices

Question 24

3 conditions for transferring products or services at market prices that lead to optimal decisions?

Answer 24

1 market perfectly competitive for intermediate product 2 interdependencies of subunits minimal 3 no additional costs or benefits to company from buying Or selling in external market instead of transacting internally

Question 25

Using market based transfer prices in competitive markets enables companies to do 4 things?

Answer 25

1 promote goal congruence 2 motivate management effort 3 evaluate subunit performance 4 preserve subunit autonomy

Question 26

Dual pricing

Answer 26

Using 2 separate transfer pricing methods to price | Each transfer from 1 subunit to another

Question 27

Minimum transfer price equation?

Answer 27

Minimum transfer price = Incremental cost/unit incurred to point of transfer + Opportunity cost/unit to the selling subunit

Question 28

Minimum transfer price per barrel equation?

Answer 28

Minimum transfer price per barrel = | Incremental cost/barrel + opportunity cost/barrel

Question 29

How should management control systems be designed 3 things?

Answer 29

1 closely aligned to organization's strategy 2 support organizational responsibilities of individual Managers 3 motivate managers and other employees to give Effort to achieve organization's goals

Question 30

Different transfer pricing methods produce...

Answer 30

Different revenues and costs for individual subunits | Hence different operating incomes for subunits

Question 31

What problems can arise when full cost plus markup is used as the transfer price?

Answer 31

Lead to suboptimal decisions it leads buying Division to regard fixed costs and Markup of sell division as variable costs This may lead to buying from outside supplier and Not getting cost savings

Question 32

What is the feasible range for transfer prices when there is unused capacity?

Answer 32

Btw minimum price selling division is willing to sell | And maximum price buying division is willing to pay

Question 33

What is the minimum price at which the selling division is willing to sell?

Answer 33

Variable cost per unit

Question 34

What is the maximum price the buying division is willing to pay?

Answer 34

Lower of contribution or price at which product is available from external suppliers?

Question 35

3 alternative ways firms arrive at eventual transfer price?

Answer 35

1 proration 2 negotiation between divisions 3 dual pricing

Question 36

Proration

Answer 36

Splitting the difference equally or on basis of relative | Variable costs

Question 37

How do income tax provisions affect transfer pricing in multinationals?

Answer 37

Transfer prices can reduce income taxes by reporting more income in low tax rate countries and less in high tax rate countries Tax regulations of different countries restrict the transfer Prices that companies can use