Question : Objective 22.7 1) An advantage of a negotiated transfer price is  : 1212005

Objective 22.7

1) An advantage of a negotiated transfer price is  the ________.

A) close relationship between the negotiated price and the market price

B) negotiated transfer price preserves divisional autonomy

C) negotiations usually do not require much time and energy

D) simplicity of its computations and close approximation to market price

2) The range over which two divisions will negotiate a transfer price is ________.

A) between the supplying division’s variable cost and the market price of the product

B) between the supplying division’s variable cost and its full cost of the product

C) it could be anywhere above the supplying division’s full cost of the product

D) between the supplying division’s full cost and 180% above its full cost

3) The transfer-pricing method that reduces the goal-congruence problems associated with a pure cost-plus-based transfer-pricing method is the ________.

A) dual pricing

B) market pricing

C) single pricing

D) distress pricing

4) Which of the following is a disadvantage of using negotiated transfer price?

A) It requires each division manager to put forth effort to increase division operating income.

B) Negotiated transfer prices take away the divisional autonomy as prices depend on bargaining strength.

C) Negotiations usually require much time and energy thereby consuming precious managerial time.

D) It may lead to divisional enmity because negotiation process may cause frictions among departments.

5) When there is unused capacity, ________.

A) the transfer-price range lies between the its variable cost per unit and the higher of its contribution or price at which the product is available from external suppliers

B) the transfer-price range lies between the maximum price at which the selling division is willing to sell and the minimum price the buying division is willing to pay

C) the transfer-price range lies between the minimum price at which the selling division is willing to sell and the maximum price the buying division is willing to pay

D) the transfer-price range lies between the its fixed cost per unit and the higher of its contribution or price at which the product is available from external suppliers

6) Which of the following is a disadvantage of dual pricing?

A) It strongly preserves the autonomy of divisions, and the division managers are motivated to put forth effort to increase the operating income of their respective divisions, causing inefficiencies.

B) The price arrived by using dual pricing has no specific relationship to either costs or the market price.

C) It leads to disputes about which price should be used when computing the taxable income of subunits located in different tax jurisdictions.

D) It assumes that the minimum transfer price equals the incremental cost per unit incurred up to the point of transfer minus the opportunity cost per unit to the selling division.

7) A disadvantage of using negotiated prices is that the time and energy spent by managers haggling over transfer prices make the method too costly.

8) Dual pricing uses two separate transfer-pricing methods to price each transfer from one subunit to another.

9) One concern with dual pricing is that it leads to disputes about which price should be used when computing the taxable income of subunits located in different tax jurisdictions.

10) Dual pricing insulates managers from the realities of the marketplace because costs, not market prices, affect the revenues of the supplying division.