A limitation of transfer prices based on actual cost is that they Must be adjusted by some markup. Can lead to suboptimal decisions for the company as a whole Lack clarity and administrative convenience. Charge inefficiencies to the department that is transferring the goods

A limitation of transfer prices based on actual cost is that they Must be adjusted by some markup. Can lead to suboptimal decisions for the company as a whole Lack clarity and administrative convenience. Charge inefficiencies to the department that is transferring the goods

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter9: Responsibility Accounting And Decentralization

Section: Chapter Questions

Problem 7EB: Discuss how, as warehouse manager for Vinnies Vinyls, you view the different rate of allocated costs...

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Discuss how, as warehouse manager for Vinnies Vinyls, you view the different rate of allocated costs the warehouse is being charged compared to the West store. Describe the implications of this. What steps could you take to solve this discrepancy? What alternatives would you consider, assuming management is willing to consider making changes in the rate?
Morrisons Plastics Division, a profit center, sells its products to external customers as well as to other internal profit centers. Which one of the following circumstances would justify the Plastics Division selling a product internally to another profit center at a price that is below the market-based transfer price? a. The buying unit has excess capacity. b. The selling unit is operating at full capacity. c. Routine sales commissions and collection costs would be avoided. d. The profit centers managers are evaluated on the basis of unit operating income.
In a make-or-buy decision, a. the company must choose between expanding or dropping a product line. b. the company must choose between accepting or rejecting a special order. c. the company would consider the purchase price of the externally provided good to be relevant. d. the company would consider all fixed overhead to be irrelevant. e. None of these.
For each of the following items, identify which of the managementaccounting guidelines applies: cost–benefit approach, behavioral and technical considerations, ordifferent costs for different purposes.1. Analyzing whether to produce a component needed for the end product or to outsource it.2. Deciding whether to compensate the sales force by straight commission or by salary.3. Adding the cost of store operations to merchandise cost when deciding on product pricing, but onlyincluding the cost of freight and the merchandise itself when calculating cost of goods sold on theincome statement.4. Considering the desirability of purchasing new technology.5. Weighing the cost of increased inspection against the costs associated with customer returns of defectivegoods.6. Deciding whether to buy or lease an existing production facility to increase capacity.7. Estimating the loss of future business resulting from bad publicity related to an environmental disastercaused by a company’s factory in…
Whenever the units manufactured differ from the units sold, finished goods inventory is affected. In analyzing operating income, such increases and decreases could be misinterpreted as operating efficiencies or inefficiencies. Each decision-making situation should be carefully analyzed in deciding whether absorption or variable costing reporting would be more useful. All costs are controllable in the long run by someone within a business. For a given level of management, costs may be controllable costs or noncontrollable costs. The production manager for Saxon, Inc. is worried because the company is not showing a high enough profit. Looking at the income statements on the Absorption Statement and the Variable Statement, he notices that the operating income is higher on the absorption cost income statement. He is considering manufacturing another 10,000 units, up to the company’s capacity for manufacturing, in the coming year. He reasons that this will boost operating income and satisfy…
Management accounting guidelines. For each of the following items, identify which of the management accounting guidelines applies: cost–benefit approach, behavioral and technical considerations, or different costs for different purposes. Analyzing whether to produce a component needed for the end product or to outsource it. Deciding whether to compensate the sales force by straight commission or by salary. Adding the cost of store operations to merchandise cost when deciding on product pricing, but only including the cost of freight and the merchandise itself when calculating cost of goods sold on the income statement. Considering the desirability of purchasing new technology. Weighing the cost of increased inspection against the costs associated with customer returns of defective goods. Deciding whether to buy or lease an existing production facility to increase capacity. Estimating the loss of future business resulting from bad publicity related to an environmental disaster caused…
Briefly explain two factors that tend to result in product cost distortion under traditional, volume-based product costing systems.
Explain why a costing system that uses a volume-based rate is likely to produce distorted productcosts
Which of the following statements is false? Cost allocations such as activity-based costing allow manager to evaluate profitability of their products. A budget is a quantitative plan for acquiring and using financial and other resources over a specific forthcoming time period. A detailed activity-based costing system is costly to implement. Using different allocation base does not affect manufacturing overhead costs allocated to each product.
Differential costs represent – Group of answer choices the costs which is shown in the balance sheet but not expensed in the income statement until the sale of the products. The differences in costs among different departments of an organization. the amount of increase or decrease in costs from a particular course of action when compared to its alternatives the difference between controllable costs and non-controllable costs.
Which of the following is NOT a problem associated with standard cost accounting? a. Standard costing motivates management to produce large batches of products and build inventory. b. Applying standard costing leads to product cost distortions in a lean environment. c. Standard costing data are associated with excessive time lags that reduce its usefulness. d. The financial orientation of standard costing may promote bad decisions. e. All of the above are problems with standard costing.
Accounting for lean operations requires fewer transactions because a. combined materials and conversion costs are transferred to finished goods b. costs are accumulated in one department and then transferred to the next department c. costs are transferred from department to department allowing for better control of costs d. large batches of inventory are combined into a smaller number of transactions