Chap019 - Chapter 19 Transfer Pricing Chapter 19 Transfer...

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Unformatted text preview: Chapter 19 - Transfer Pricing Chapter 19 Transfer Pricing True / False Questions 1. The transfer price should be chosen so that each division manager, when striving to maximize his or her own division's profits, makes the decision that maximizes the company's profit. TRUE AACSB: Reflective Thinking AICPA BB: Critical Thinking; Resource Management AICPA FN: Measurement; Decision Making; Reporting Difficulty: Medium Learning Objective: 1 2. A transfer price represents the amount charged when one division sells goods or services to another division of the same company. TRUE AACSB: Analytic AICPA BB: Critical Thinking; Resource Management AICPA FN: Measurement; Decision Making Difficulty: Easy Learning Objective: 1 3. In a decentralized organization, the managers of profit centers and investment centers have little autonomy in deciding whether to accept or reject orders and whether to buy from inside the organization or from outside. FALSE AACSB: Reflective Thinking AICPA BB: Critical Thinking; Resource Management AICPA FN: Measurement; Decision Making; Reporting Difficulty: Medium Learning Objective: 1 19-1 Chapter 19 - Transfer Pricing 4. The transfer price charged when one division of an organization sells goods or services to another division affects the total profit of the overall organization, assuming a transfer is made. FALSE AACSB: Analytic AICPA BB: Critical Thinking; Resource Management AICPA FN: Measurement; Decision Making Difficulty: Medium Learning Objective: 1 5. The transfer pricing policy of a company can affect the incentives of autonomous division managers as they decide whether to make the transfer. TRUE AACSB: Analytic AICPA BB: Critical Thinking; Resource Management AICPA FN: Measurement; Decision Making Difficulty: Medium Learning Objective: 1 6. The goal in setting transfer prices is to establish incentives for autonomous division managers to make decisions that support the goals of the division. FALSE AACSB: Reflective Thinking AICPA BB: Critical Thinking; Resource Management AICPA FN: Measurement; Decision Making Difficulty: Hard Learning Objective: 1 7. Under imperfect competition, where the external market price depends on the production decisions of the producer, the opportunity cost incurred buy the company as a result of internal transfers depends on the quantity sold internally. TRUE AACSB: Analytic AICPA BB: Critical Thinking; BB: Marketing; Resource Management AICPA FN: Measurement; Decision Making Difficulty: Hard Learning Objective: 2 19-2 Chapter 19 - Transfer Pricing 8. A general rule that will ensure goal congruence is to set the transfer price equal to the sum of the additional outlay cost per unit incurred because goods are transferred and the opportunity cost per unit to the organization because of the transfer....
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This note was uploaded on 05/29/2011 for the course ACCOUNTING 102 taught by Professor Mohamed during the Spring '11 term at Faculty of English Commerce Ain Shams University.

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Chap019 - Chapter 19 Transfer Pricing Chapter 19 Transfer...

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