Question : 17) The president of Silicon Company has just returned from : 1217127

17) The president of Silicon Company has just returned from a week of professional development courses and is very excited that she will not have to change the organization from a centralized structure to a decentralized structure just to have responsibility centers. However, she is somewhat confused about how responsibility centers relate to centralized organizations where a few managers have most of the authority.

Required:

Explain how a centralized organization might allow for responsibility centers.

Objective 22.3

1) A product may be passed from one subunit to another subunit in the same organization. The product is known as a(n):

A) interdepartmental product

B) intermediate product

C) subunit product

D) transfer product

2) Transfer prices should be judged by whether they promote:

A) goal congruence.

B) the balanced scorecard method.

C) a high level of subunit autonomy in decision making.

D) Both A and C are correct.

3) A transfer-pricing method leads to goal congruence when managers:

A) always act in their own best interest

B) act in their own best interest and the decision is in the long-term best interest of the manager’s subunit

C) act in their own best interest and the decision is in the long-term best interest of the company

D) act in their own best interest and the decision is in the short-term best interest of the company

4) Negotiated transfer prices are often employed when:

A) market prices are stable

B) market prices are volatile

C) market prices change by a regular percentage each year

D) goal congruence is not a major objective

5) The costs used in cost-based transfer prices:

A) are actual costs

B) are budgeted costs

C) can either be actual or budgeted costs

D) are lower than the market-based transfer prices

Answer the following questions using the information below:

Penn Oil Corporation has two divisions, Refining and Production. The company’s primary product is Luboil Oil. Each division’s costs are provided below:

Production:              Variable costs per barrel of oil$ 9

Fixed costs per barrel of oil$ 6

Refining:Variable costs per barrel of oil$30

Fixed costs per barrel of oil$36

The Refining Division has been operating at a capacity of 40,000 barrels a day and usually purchases 25,000 barrels of oil from the Production Division and 15,000 barrels from other suppliers at $60 per barrel.

6) What is the transfer price per barrel from the Production Division to the Refining Division, assuming the method used to place a value on each barrel of oil is 180% of variable costs?

A) $16.20

B) $27.00

C) $54.00

D) $70.20

7) What is the transfer price per barrel from the Production Division to the Refining Division, assuming the method used to place a value on each barrel of oil is 110% of full costs?

A) $16.50

B) $66.00

C) $72.60

D) $89.10

8) Assume 200 barrels are transferred from the Production Division to the Refining Division for a transfer price of $18 per barrel. The Refining Division sells the 200 barrels at a price of $120 each to customers. What is the operating income of both divisions together?

A) $7,200

B) $7,800

C) $10,800

D) $20,400