16) Which of the following is NOT a benefit of decentralization?

A) Lower-level managers have the best information concerning local conditions and therefore may be able to make better decisions than their superiors.

B) Managers acquire decision-making ability and other management skills that help them move upward in the organization, assuring continuity of leadership.

C) Managers enjoy higher status from being independent and thus are better motivated.

D) Managers save time dealing with managers from other segments regarding transfer prices.

Use the following information of the Toro division of Hondo Corporation to answer the next question(s):



Variable expenses


Fixed Expenses


Total divisional assets are $800,000. The firm’s minimum required rate of return is 10%.

17) Residual income for the Toro division is

A) $50,000.

B) $70,000.

C) $150,000.

D) $170,000.

18) Return on investment for the Toro division is

A) 5.34%.

B) 10%.

C) 12.5%.

D) 18.75%.

19) Decentralization is most successful when

A) segment autonomy does not exist.

B) established in nonprofit organizations.

C) there is frequent transferring of products between segments.

D) an organization’s segments are relatively independent of one another.

20) The decision-making power of segment managers is called

A) goal congruence.

B) segment autonomy.

C) managerial effort.

D) segment superiority.

21) A transfer price exists when two segments of the same organization

A) sell a product to the same customer.

B) sell a service to each other.

C) sell a product in a foreign country.

D) sell the same service to competitors.

22) Transfer-pricing systems do NOT exist to

A) communicate data that will lead to goal-congruent decisions.

B) guide managers to make the best possible decision for their segment.

C) evaluate segment performance.

D) motivate both the selling manager and the buying manager toward goal-congruent behaviour.

23) Which of the following is NOT a method of establishing a transfer price?

A) Full cost-based pricing less a profit markup

B) Market-based pricing

C) Negotiated pricing

D) Variable cost-based pricing

24) Assuming a company uses a cost-based pricing system for transfer pricing, which of the following is not a possible definition of cost?

A) Variable cost

B) Full cost

C) Actual cost

D) Fixed cost

25) The use of which cost is recommended for transfer-pricing purposes?

A) Standard cost

B) Actual cost

C) Fixed cost

D) Sunk cost

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