Which of the following is a disadvantage of using the negotiated price strategy to determine the transfer price?

Which of the following is a disadvantage of using the negotiated price strategy to determine the transfer price?

ANSWER

INCORRECT

·         

It is usually viewed as fair by both parties.

·         

THE CORRECT ANSWER

It takes time and effort.

·         

YOU WERE SURE AND INCORRECT

It can be useful if a market price is not available.

·         

It allows division managers to act autonomously.

·         

I DON'T KNOW YET

Takeing time and effort is a disadvantage of using the negotiated price strategy to determine the transfer price.

Allowing division managers to act autonomously is an advantage of using the negotiated price strategy to determine the transfer price.

Usually being viewed as fair by both parties is an advantage of using the market price strategy.

Being useful if a market price is not available is an advantage of using the cost plus a markup strategy.

Which of the following is NOT an advantage of decentralization?

ANSWER

correct

·         

Improvement in customer relations

·         

Improvement in motivation and retention of employees

·         

YOU WERE SURE AND CORRECT

Potential duplication of costs

·         

Providing of training

·         

I DON'T KNOW YET

Which of the following is NOT a strategy to determine the transfer price?

ANSWER

INCORRECT

·         

Negotiated price

·         

YOU WERE SURE AND INCORRECT

Cost

·         

Market price

·         

THE CORRECT ANSWER

Market price + 1%

·         

I DON'T KNOW YET

Market price + 1% is NOT a strategy to determine the transfer price. Prices close to the market price should not be considered in the market price strategy. Market price, negotiated price, and cost are strategies to determine the transfer price.

Which of the following is TRUE about organization-wide performance reports?

ANSWER

INCORRECT

·         

THE CORRECT ANSWER

Operating income from each profit center flows into the performance report for an investment center.

·         

The front-line worker instead of a manager always discovers the root cause of a large variance on an organization-wide performance report.

·         

YOU WERE SURE AND INCORRECT

Costs incurred by corporate headquarters are treated as a cost center and are typically allocated to any of the divisions.

·         

Managers always complete the organization-wide performance report because a manager completely controls the economic conditions surrounding the organization.

·         

I DON'T KNOW YET

Operating income from each profit center flows into the performance report for an investment center is a TRUE statement about organization-wide performance reports. The other answers are not correct.