題目：
Explain the potential benefits of operating a transfer pricing system within a divisionalisedcompany.
題目：
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
題目：
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.
題目：
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
$ _______
題目：
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 …………………. .
題目：
An investment centre with capital employed of $570,000 is budgeted to earn a profit of $119,700 nextyear. A proposed fixed asset investment of $50,000, not included in the budget at present, will earn aprofit next year of $8,500 after depreciation. The company's cost of capital is 15%. What is the budgetedROI and residual income for next year, both with and without the investment
ROI Residual income
Without investment ……………….. ………………..
With investment ……………….. ………………..
題目：
Choose the correct words from those highlighted.
ROI based on profits as a % of net assets employed will (a) increase/decrease as an asset gets older andits book value (b) increases/reduces. This could therefore create an (c) incentive/disincentive toinvestment centre managers to reinvest in new or replacement assets.
題目：
The transfer pricing system operated by a divisional company has the potential to make a significantcontribution towards the achievement of corporate financial objectives.
Required
Explain the potential benefits of operating a transfer pricing system within a divisionalised company.
題目：
A division with capital employed of $400,000 currently earns an ROI of 22%. It can make an additionalinvestment of $50,000 for a five year life with nil residual value. The average net profit from thisinvestment would be $12,000 after depreciation. The division's cost of capital is 14%.
What are the residual incomes before and after the investment
題目：
This question appeared in the June 2015 exam.
At the start of the year, a division has non-current assets of $4 million and makes no additions ordisposals during the year. Depreciation is charged at a rate of 10% per annum on all non-currentassets held at the end of the year. Working capital is $0.5 million at the start of the year althoughthis is expected to increase by 20% by the end of the year. The budgeted profit of the division afterdepreciation is $1.2 million.
What is the expected ROI of the division for the year, based on average capital employed
A27.59%
26.37%
18.39%
31.58%
題目：
This question appeared in the June 2015 exam.
A division is considering investing in capital equipment costing $2.7m. The useful economic life ofthe equipment is expected to be 50 years, with no resale value at the end of the period. Theforecast return on the initial investment is 15% per annum before depreciation. The division's costof capital is 7%
What is the expected annual residual income of the initial investment
A$0
($270,000)
$162,000
$216,000
題目：
SWAL has two divisions, SW and AL, which operate as profit centres and have full autonomy inmaking, buying and selling decisions.
SW manufactures SW+ at a cost of $12 per unit. The market price of SW+ is $16 per unit.
AL uses SW+ in manufacturing its own product. The transfer price of SW+ when transferred fromDivision SW to Division AL is set at full production cost plus 20%.
Which one of the following independent circumstances represents dysfunctional behaviourarising from SWAL's transfer pricing policy
ASW refuses to sell SW+ to AL as there is unlimited demand for SW+ in the external market.
AL refuses to order from SW as it can buy SW+ from the open market at lower than currenttransfer price. As a result, SW sells all its units on the open market.
SW refuses to transfer below market price so AL is forced to buy from the external market.
SW agrees to sell to AL but has to cancel the sale in order to fulfil an urgent customer orderwho is willing to pay a higher price for immediate delivery.
題目：
The following information relates to an investment centre, which is a separate product division in alarge company.
$
Net current assets 60,000
Non-current assets 240,000
Profit before depreciation 50,000
Depreciation 10,000
The company's cost of capital is 10%. What is the most appropriate measure of the centre's Returnon Investment (ROI)
A3.3%
13.3%
16.7%
20.8%
題目：
Which of the following is not a disadvantage of using market value as a transfer price
The market price might be a temporary one.
Use of market price might act as a disincentive to use up spare capacity.
Many products do not have an equivalent market price.
The external market might be perfect.
題目：
To prevent dysfunctional transfer price decision-making, profit centres must be allowed to makeautonomous decisions. True or false
True
False
題目：
'The use of residual income in performance measurement will avoid dysfunctional decision-makingbecause it will always lead to the correct decision concerning capital investments.'
ATrue
false
題目：
Division B of a company makes units which are then transferred to other divisions. Thedivision has no spare capacity. The following statements have been made regarding theminimum transfer price that will encourage the divisional manager of B to transfer units toother divisions:
(1) Any price above variable cost will generate a positive contribution, and will thereforebe accepted.
(2) The division will need to give up a unit sold externally in order to make a transfer;this is only worthwhile if the income of a transfer is greater than the net income of anexternal sale.
Which of the above statement(s) is/are true
(1) only
(2) only
CNeither (1) nor (2)
Both (1) and (2)
題目：
Perrin Co has two divisions, A and B.
Division A has limited skilled labour and is operating at full capacity making product Y. It hasbeen asked to supply a different product, X, to division B. Division B currently sources thisproduct externally for $700 per unit.
The same grade of materials and labour is used in both products. The cost cards for eachproduct are shown below:
Product Y X
($)/unit ($)/unit
Selling price 600 –
Direct materials ($50 per kg) 200 150
Direct labour ($20 per hour) 80 120
Apportioned fixed overheads ($15 per hour) 60 90
Using an opportunity cost approach to transfer pricing, what is the minimum transferprice
$270
$750
$590
$840
題目：
Oxco has two divisions, A and B. Division A makes a component for air conditioning unitswhich it can only sell to Division B. It has no other outlet for sales.
Current information relating to Division A is as follows:
Marginal cost per unit $100
Transfer price of the component $165
Total production and sales of the component each year 2,200 units
Specific fixed costs of Division A per year $10,000
Cold Co has offered to sell the component to Division B for $140 per unit.
If Division Baccepts this offer, Division A will be shut.If Division B accepts Cold Co’s offer, what will be the impact on profits per year for thegroup as a whole
Increase of $65,000
Decrease of $78,000
Decrease of $88,000
Increase of $55,000
題目：
Dust Co has two divisions, A and B. Each division is currently considering the followingseparate projects:
Division A Division B
Capital required for the project $32.6 million $22.2 million
Sales generated by the project $14.4 million $8.8 million
Operating profit margin 30% 24%
Cost of capital 10% 10%
Current return on investment of division 15% 9%
If residual income is used as the basis for the investment decision, which division(s)would choose to invest in the project
Division A only
Division B only
Both Division A and Division B
Neither Division A neither Division B
題目：
EJET is an airline company that operates domestically and internationally using a fleet of 20aircraft. Passengers book flights using the internet or by telephone and pay for their flights at thetime of booking using a debit or credit card.
EJET currently measures its performance using financial ratios. The new Managing Director hassuggested that non-financial measures are equally important as financial measures and providefurther insights into company performance.
Indicate the statements shown below that are valid:
A Non-financial measures are less likely to be manipulated than traditional financial ratios.
B Non-financial measures may discourage dysfunctional behaviour by airline staff.
C Financial ratios do not need to be linked with non-financial measures.
D Non-financial measures are a better indicator of future prospects than financial ratios whichfocus on the short term.
E Internal efficiency can be measured by the number of flight take-offs that are on time.
F Non-financial performance measures do not need to be developed and refined over time asthey always remain relevant.
G Customer satisfaction can be measured in terms of the number of failed attempts to make abooking due to website crashes.
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