Learning Objective 15-3
1) Which of the following is not true about subunits in decentralized organizations?
A) Decision-making power resides in individual subunits.
B) Decision-making power resides in multiple subunits.
C) Subunits interact by supplying goods to one another.
D) Subunits interact by supplying services to one another.
E) When subunits work together, top management uses transfer prices to coordinate the actions of the subunits.
2) When subunits work together, top management uses ________ to coordinate the actions of the subunits and to evaluate the performance of their managers.
A) transfer prices
B) single unit cost
C) dual pricing
D) multiple unit costs
E) hybrid pricing
3) Which of the following is the price one subunit charges for a product or service supplied to another subunit of the same organization?
A) Unit cost.
B) Turn price.
C) Trade price.
D) Transfer price.
E) Recording price.
4) Which of the following is not true about transfer prices?
A) Creates costs for the selling subunit.
B) Creates revenue for the selling subunit.
C) Affects each subunit’s operating income.
D) Operating incomes used to evaluate subunits’ performance.
E) Operating incomes are not used to motivate managers.
5) Which of the following is the product or service transferred between subunits of an organization?
A) Unit product.
B) Internal product.
C) External product.
D) Subordinate product.
E) Intermediate product.
6) Which of the following is not considered criteria used by managers to evaluate transfer prices?
A) Promotes goal congruence.
B) Induces managers to exert a high level of effort.
C) Helps top management evaluate the performance of individual subunits.
D) Preserves a high degree of subunit autonomy in decision making if top management favors a high degree of decentralization.
E) Subunits selling a product of service should not be motivated to hold down their costs.
7) With a well-designed transfer price, each divisional manager makes the best decision for his or her subunit, while simultaneously ________ the profits of the firm.
8) ________ ease the subunit managers’ information-processing and decision-making tasks.
A) Unit costs
B) Turn prices
C) Trade prices
D) Transfer prices
E) Recording prices
9) In centralized organizations, much of the decision-making power resides in the individual subunits.
10) In a well-designed transfer-pricing system, a manager focuses on minimizing subunit performance.
11) What is the rationale of transfer prices?
12) What is the focus of managers in a well-designed transfer-pricing system?
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