Chapter 15 Flashcards
A transfer price is the value assigned to the transfer of goods or services between divisions within
the same organization.
T
Transfer prices are not used to record the exchange between two cost centers within the same
organization.
T
Transfer prices cannot be used for decision making, product costing, or performance evaluation.
T
From an organization’s viewpoint, transfer prices have no effect on total profits assuming the
transfer occurs between the two responsibility centers.
T
If a transfer has no effect on divisional profit, risk-neutral managers will be indifferent between
making the transfer or not.
T
If an intermediate market exists but divisions are prohibited from buying or selling from the
outside, the intermediate market can be ignored in determining the optimal transfer price.
T
A perfect intermediate market exists if buyers can buy and sellers can sell outside of the
organization.
F
When a perfect intermediate market exists, the optimal transfer price is the intermediate market
price.
T
In general, the optimal transfer price for a division is the sum of its outlay costs and the
opportunity cost of not transferring its goods to another division.
F
The use of an optimal transfer price eliminates potential conflicts between an organization’s
interests and the divisional manager’s interest.
T
*A market price-based transfer price policy allows the selling division to determine the price for
transfers between divisions within the same organization.
A selling division at capacity is indifferent between selling to outsiders and transferring inside at
the market price.
T
When actual costs are used as the basis for a transfer, inefficiencies of the selling division are
transferred to the buying division.
T
A transfer made at cost does not motivate the selling division to transfer its goods or services
internally.
F
In general, negotiated transfer prices fall in a range between the selling division’s differential
costs and the buying division’s market price.
T
In the United States, more companies use cost-based transfer prices than market-based transfer
prices.
T
In interstate transactions, transfers can reduce an organization’s tax liability when the selling
division is in a lower tax jurisdiction than the buying division.
F
In interstate transactions, transfers can reduce an organization’s tax liability when the selling
division is in a lower tax jurisdiction than the buying division.
T
Tax avoidance is unethical when inflated transfer prices are used in international transactions to
shift profits from a division in one country to a division in another country.
T
An organization that has significant foreign operations must disclose how its transfer prices are
established between domestic and foreign divisions.
F
The GAAP financial reporting rules for segments require that all companies use transfer prices
based on market prices.
T
Which of the following statements is(are) false?
(A) From an organization’s viewpoint, transfer prices have no effect on total profits assuming the
transfer occurs between the two responsibility centers.
(B) A transfer price is the value assigned to the transfer of goods or services between divisions
within the same organization.
A. Only A is false.
B. Only B is false.
C. Both A and B are false.
D. Neither A nor B is false.
D
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Which of the following responsibility centers is affected by the use of market-based transfer
prices?
A. Cost center.
B. Profit center.
C. Revenue center.
D. Production center.
B
Transfer prices would not be used by:
A. production centers.
B. investment centers.
C. profit centers.
D. cost centers.
B
