Chpter 7 Transfer Pricing Flashcards
Why are cost based approaches to transfer pricing often used in practice ?
- There is often no external market for the product that is being transferred
- The external market is imperfect
- The transferring division wants to maximise its profits
- The buying division wants to maximise profits
- There is often no external market for the product that is being transferred
- The external market is imperfect
What type of transfer price involves crediting the market price to the selling division and debiting the variable cost to buying divisions?
- Two part tariff
- Dual Price
- Imposed transfer price
- Market based transfer price
Dual Price
Which of the following problems are particularly associated with operating a system of transfer pricing ?
- Ensuring that goal congruence is retained among the organisation’s separate divisions
- Ensuring that divisional performance measurement is not affected
- Ensuring that corporate profits are maximised
- Ensuring that the group remains competitive
- Ensuring that goal congruence is retained among the organisation’s separate divisions
- Ensuring that corporate profits are maximised
- Ensuring that divisional performance measurement is not affected
Considerable time has been spent by the managers of A and B divisions in O Ltd in arguing abut the level of transfer prices for transactions between the two divisions as a result of O’s senior management team has ordered the manager to base transfer prices on market values
Which of the following are disadvantages of the policy imposed by senior management O ltd ?
-Internal transfers are cheaper than external sales
-Using market prices doesn’t give the supplying division an incentive to provide a quality service.
-Market prices ay only be temporary
-Market price is not an appropriate measure to use if the supplying division is operation at full capacity
-There may be no market price for the product or service being suppplied
- Internal transfers are cheaper than external sales
- Market prices ay only be temporary
- There may be no market price for the product or service being supplied
J has two divisions K and L
J ‘s product rang includes the Q component. The market price J charges for the Q is $12 and J has a number of competitors in the market. It costs K $10 to manufacture Q. L is planning to use the Q component in a new product that it has developed. J has specified that transfer prices should be at manufacturing cost plus 15%. Divisions are organised as profit centres ad they have autonomy in their buying and selling decisions.
Which of the following represents dysfunctional behaviour hat may result from the transfer pricing policy?
-K may refuse to sell L the Q at below market price, forcing L to buy the Q on the open market
-Head Office may have to make a payment to K to persuade it to sell L the Q at the transfer price
-L may obtain its supply of Q at a bulk discount cost $9.80
-K may refuse to sell Q to L because it is already producing at full capacity to satisfy the demand of existing external customer
-K may refuse to sell L the Q at below market price, forcing L to buy the Q on the open market
A major international accountancy firm with headquarters in Tigsland is contemplating the first audit of a subsidiary of a major client in Ramland. The firm has a local office in Ramsland and is deciding whether to use staff from Tigsland, based in the Ramsland Office, or Whether to use local staff in the Ramsland office.
Which of the following would constitute as dysfunctional behaviour ?
-The fimr uses staff from Tigsland because hey are more familiar with international accounting and auditing standards.
-The firm uses staff from Ramslnd because they are more familiar with the local business environment.
-The firm uses staff from Tigsland because the Ramsland office is charging its staff to Tigsland at higher than the market rate in Tigsland and Ramsland, to reflect the importance of he client
- The firm uses staff from Tigsland and the Ramsland office foes them to pay full market prices for use of facilities in the Ramsland Office
-The firm uses staff from Tigsland because the Ramsland office is charging its staff to Tigsland at higher than the market rate in Tigsland and Ramsland, to reflect the importance of he client
Wen the dual price method of transfer pricing is used , the receiving division is charged for the transfer at:
- Marginal Cost
- Marginal cost plus a mark up
- Full cost
- Full Cost plus mark-up
- Marginal cost
Why are cost based approaches to transfer pricing often used in practice ?
- There is often no external market for the product that is being transferred
- The external market is imperfect
- The transferring division wants to maximise its profits
- The buying division wants to maximise profits
- There is often no external market for the product that is being transferred
- The external market is imperfect
What type of transfer price involves crediting the market price to the selling division and debiting the variable cost to buying divisions?
- Two part tariff
- Dual Price
- Imposed transfer price
- Market based transfer price
Dual Price
Which of the following problems are particularly associated with operating a system of transfer pricing ?
- Ensuring that goal congruence is retained among the organisation’s separate divisions
- Ensuring that divisional performance measurement is not affected
- Ensuring that corporate profits are maximised
- Ensuring that the group remains competitive
- Ensuring that goal congruence is retained among the organisation’s separate divisions
- Ensuring that corporate profits are maximised
- Ensuring that divisional performance measurement is not affected
Considerable time has been spent by the managers of A and B divisions in O Ltd in arguing abut the level of transfer prices for transactions between the two divisions as a result of O’s senior management team has ordered the manager to base transfer prices on market values
Which of the following are disadvantages of the policy imposed by senior management O ltd ?
-Internal transfers are cheaper than external sales
-Using market prices doesn’t give the supplying division an incentive to provide a quality service.
-Market prices ay only be temporary
-Market price is not an appropriate measure to use if the supplying division is operation at full capacity
-There may be no market price for the product or service being suppplied
- Internal transfers are cheaper than external sales
- Market prices ay only be temporary
- There may be no market price for the product or service being supplied
J has two divisions K and L
J ‘s product rang includes the Q component. The market price J charges for the Q is $12 and J has a number of competitors in the market. It costs K $10 to manufacture Q. L is planning to use the Q component in a new product that it has developed. J has specified that transfer prices should be at manufacturing cost plus 15%. Divisions are organised as profit centres ad they have autonomy in their buying and selling decisions.
Which of the following represents dysfunctional behaviour hat may result from the transfer pricing policy?
-K may refuse to sell L the Q at below market price, forcing L to buy the Q on the open market
-Head Office may have to make a payment to K to persuade it to sell L the Q at the transfer price
-L may obtain its supply of Q at a bulk discount cost $9.80
-K may refuse to sell Q to L because it is already producing at full capacity to satisfy the demand of existing external customer
-K may refuse to sell L the Q at below market price, forcing L to buy the Q on the open market
A major international accountancy firm with headquarters in Tigsland is contemplating the first audit of a subsidiary of a major client in Ramland. The firm has a local office in Ramsland and is deciding whether to use staff from Tigsland, based in the Ramsland Office, or Whether to use local staff in the Ramsland office.
Which of the following would constitute as dysfunctional behaviour ?
-The fimr uses staff from Tigsland because hey are more familiar with international accounting and auditing standards.
-The firm uses staff from Ramslnd because they are more familiar with the local business environment.
-The firm uses staff from Tigsland because the Ramsland office is charging its staff to Tigsland at higher than the market rate in Tigsland and Ramsland, to reflect the importance of he client
- The firm uses staff from Tigsland and the Ramsland office foes them to pay full market prices for use of facilities in the Ramsland Office
-The firm uses staff from Tigsland because the Ramsland office is charging its staff to Tigsland at higher than the market rate in Tigsland and Ramsland, to reflect the importance of he client
Wen the dual price method of transfer pricing is used , the receiving division is charged for the transfer at:
- Marginal Cost
- Marginal cost plus a mark up
- Full cost
- Full Cost plus mark-up
- Marginal cost
