Question 1. Transfer pricing involves setting appropriate selling prices for goods or services when the seller is external to the company.
Question 2. A market-based transfer pricing policy requires buyers and sellers to transfer goods based on externally verifiable prices.
Question 3. Cost-based transfer pricing methods require time and effort because external bids must be acquired and evaluated.
Question 4. Transfer pricing issues typically occur in decentralized organization.
Question 5. Investment center managers are only held accountable for costs.
Question 6. Holding all other factors equal, if average total assets are increased, what will be the effect on return on investment (ROI)?
a) It will increase proportionately.
b) It will decrease proportionately.
c) It will remain the same.
d) ROI will increase at twice the rate of the increase in average total assets.
Question 7. When should opportunity cost be used in determining transfer pricing?
a) Only when no idle capacity exists.
b) Only when idle capacity exists.
c) At all times.
d) Opportunity cost should not be used in determining transfer pricing at any time.
Question 8. When establishing transfer prices, the ceiling price represents the:
a) maximum price that the buying division is willing to pay.
b) current market price of the product.
c) minimum price that the selling division is willing to accept.
d) current market price of the product minus a profit element.
Question 9. The Balanced Scorecard comprises four perspectives: financial, customer, internal business, and learning and growth. Within each perspective, how should managers select specific performance measures?
a) based on their potential to increase short-term profits
b) based on their fit with strategic goals
c) based on the principles of Total Quality Management
d) all of the above
Question 10. Transfer prices should be calculated when what are transferred between two divisions of the same company?
a) goods
b) services
c) goods and services
d) managers