Explain the potential benefits of operating a transfer pricing system within a divisionalisedcompany.

Division Y of Chardonnay currently has capital employed of $100,000 and earns an annual profitafter depreciation of $18,000. The divisional manager is considering an investment of $10,000 inan asset which will have a ten-year life with no residual value and will earn a constant annual profitafter depreciation of $1,600. The cost of capital is 15%.

Calculate the following and comment on the results.

(i) The return on divisional investment before and after the new investment

(ii) The divisional residual income before and after the new investment

Divisional performance measures

【論述題】

Compare and contrast the use of residual income and return on investment in divisionalperformance measurement, stating the advantages and disadvantages of each.

There are two profit centres, A and B. Profit centre A transfers a product to profit centre B, butcould also sell the product in an external market at a price of $30. The marginal cost of making theproduct in profit centre A is $8 per unit and the full cost is $14 per unit. There would be a variablecost of $1 per unit for sales and distribution to customers in the external market, but no such costsfor internal transfers.

To avoid disputes between the profit centre managers, what should be the transfer price for theproduct

$ _______

Fill in the blanks.

Ideally, a transfer price should be set that enables the individual divisions to maximise their profits at alevel of output that maximises ……………………. .

The transfer price which achieves this is unlikely to be a ……………….. transfer price or a……………. transfer price.

If optimum decisions are to be taken, transfer prices should reflect …………………. .

Which of the following statements, regarding the existence of multiple objectives in not-for-profit organisations, is/are correct

(1) They ensure goal congruence between stakeholders.

(2) Compromise between objectives can be problematic.

(1) only

(2) only

Both (1) and (2)

Neither (1) nor (2)

A government is trying to assess schools by using a range of financial and non-financialfactors. One of the chosen methods is the percentage of students passing five exams ormore.

Which of the three Es in the value for money framework is being measured here

Economy

Efficiency

Effectiveness

Expertise

The following statements have been made about measuring performance in not-for-profitorganisations:

(1) Output does not usually have a market value, and it is therefore more difficult tomeasure effectiveness.

(2) Control over the performance can only be satisfactorily achieved by assessments of‘value for money’.

Which of the above statements is/are true

(1) only

(2) only

Neither (1) nor (2)

Both (1) and (2)

The senior manager is suspicious of a local manager’s accounts and thinks that the profitperformance may have been overstated.

Which of the following would be a plausible explanation of an overstatement of profit

Delaying payments to payables

Shortening the useful economic life of a non-current asset

Overstatement of a prepayment

Overstatement of an accrual

Which of the following statements regarding standard setting is correct

Imposed standards are more likely to be achieved

Managers across the organisation should be targeted using the same standards

Standards should be set at an ideal level with no built in stretch

Participation in standard setting is more motivating than where standards areimposed