Fundamentals Of Cost Accounting (6th Edition)
6th Edition
ISBN: 9781259969478
Author: WILLIAM LANEN, Shannon Anderson, Michael Maher
Publisher: McGraw Hill Education
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Textbook Question
Chapter 15, Problem 19CADQ
In Chapter 12, we discussed corporate cost allocation and the incentive problems associated with these allocations. How is the problem of corporate cost allocations similar to the transfer pricing problems studied in this chapter? Is the approach suggested in Chapter 12 as a solution to the corporate cost allocation problem consistent with the optimal transfer pricing approach discussed in this chapter?
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Which of the following describes the goal that should be pursued when setting transfer prices?
Allow top management to become actively involved when calculating the proper dollar amounts.
Minimize opportunity costs.
Maximize profits of the buying division.
Establish incentives for autonomous division managers to make decisions that are in the overall organization's best interests (i.e., goal congruence).
Maximize profits of the selling division.
Which of the following is not an objective or potential advantage of transfer pricing?
A) A realistic measurement of performance of each division
B) A reduction in goal congruence between divisions and overall company
C) More autonomy and motivation for divisional managers
D) The maximisation of company profits
The use of market price in internal transfers, generally, provides managerial incentive and leads to better overall efficiency in operations.
True or False
Chapter 15 Solutions
Fundamentals Of Cost Accounting (6th Edition)
Ch. 15 - What is the purpose of a transfer price?Ch. 15 - Prob. 2RQCh. 15 - Prob. 3RQCh. 15 - What are the limitations of market-based transfer...Ch. 15 - Prob. 5RQCh. 15 - When would you advise a firm to use prices other...Ch. 15 - What is the basis for choosing between actual and...Ch. 15 - What are the advantages and disadvantages of a...Ch. 15 - Prob. 9RQCh. 15 - Why is transfer pricing important in tax...
Ch. 15 - Prob. 11RQCh. 15 - What should an effective transfer pricing system...Ch. 15 - Prob. 13CADQCh. 15 - Prob. 14CADQCh. 15 - Refer to the Business Application item, Transfer...Ch. 15 - Prob. 16CADQCh. 15 - Prob. 17CADQCh. 15 - In what ways is transfer pricing like cost...Ch. 15 - In Chapter 12, we discussed corporate cost...Ch. 15 - Prob. 20ECh. 15 - Prob. 21ECh. 15 - Apply Transfer Pricing Rules Best Practices, Inc.,...Ch. 15 - Prob. 23ECh. 15 - Prob. 24ECh. 15 - Evaluate Transfer Pricing System Southwest...Ch. 15 - Prob. 26ECh. 15 - Evaluate Transfer Pricing System Carmen Seville...Ch. 15 - Prob. 28ECh. 15 - Prob. 29ECh. 15 - Prob. 30ECh. 15 - Prob. 31ECh. 15 - Prob. 32ECh. 15 - Prob. 33ECh. 15 - Prob. 34ECh. 15 - Prob. 35ECh. 15 - Segment Reporting Leapin Larrys Pre-Owned Cars has...Ch. 15 - Segment Reporting Perth Corporation has two...Ch. 15 - Prob. 38PCh. 15 - Prob. 39PCh. 15 - Prob. 40PCh. 15 - International Transfer Prices Skane Shipping Ltd....Ch. 15 - International Transfer Prices Badger Air is an...Ch. 15 - Prob. 43PCh. 15 - Prob. 44PCh. 15 - Prob. 45PCh. 15 - Weaver, Inc., is a large consumer products...Ch. 15 - Western States Supply, Inc. (WSS), consists of...Ch. 15 - Prob. 48PCh. 15 - Midwest Entertainment has four operating...Ch. 15 - Prob. 50PCh. 15 - Mathes Corporation manufactures paper products....Ch. 15 - Refer to the data in Problem 15-51. At the end of...Ch. 15 - CHS is a large multidivision firm. One division,...Ch. 15 - Prob. 54PCh. 15 - Prob. 56IC
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- Which of the followings is NOT an advantage of financial institutions in consumption smoothing? A. They help to solve moral hazard and adverse selection issues. B. They help to share risks. C. They help to reduce transaction costs. D. They help to create more jobs.arrow_forwardWhich statement below best describes a profit center?a. The authority to make decisions affecting the major determinants of profit, including the power to choose its markets and sources of supply.b. The authority to make decisions affecting the major determinants of profit, including the power to choose its markets, sources of supply, and significant control over the amount of invested capital.c. The authority to make decisions over the most significant costs of operations, including the power to choose the sources of supply.d. The authority to provide specialized support to other units within the organization.e. The responsibility for combining the raw materials, direct labor, and other factors of production into a final product.arrow_forwardWhich of the following types of organizations can most benefit from value chain analysis? Multiple Choice Service firms. All types of organizations can benefit from value chain analysis. Not-for-profit organizations. Manufacturing firms.arrow_forward
- How do companies determine the appropriate profit margin in transfer pricing transactions?arrow_forwardWhat range of transfer prices will motivate divisions S and T to demand the quantities that maximize overall income , as well as motivate division R to produce the sum of those quantities?arrow_forwardExplain why, for large corporations, we should expect a low pay-performance relationship.arrow_forward
- A benefit of using a market-based transfer price is: a. the economic viability and profitability of each division can be evaluated individually. b. the profits of the transferring division are sacrificed for the overall good of the corporation. c. the profits of the division receiving the products are sacrificed for the overall good of the corporation. d. none of the aboveearrow_forwardWhat does it mean to obtain a competitive advantage? What role does the cost management system play in helping to achieve this goal?arrow_forwardManagement of Great Springs Bottled Water Company has asked you, the controller, to develop a transfer pricing system for the company. The Transportation Department of the company sells all of its product to the Bottling Department of the company. Thus the Transportation Departments sales become the Bottling Departments cost of goods sold. In order to determine an optimal transfer pricing system, management would like you to demonstrate what an income statement would look like under a cost, market, and negotiated transfer pricing structure. These various transfer prices are listed as follows. Prepare an income statement for each of the transfer prices by filling in the missing numbers in the provided income statement based on each transfer price (thus four different income statements) and calculate the operating income/loss percentage. Prepare a brief summary of the results.arrow_forward
- A transfer pricing structure that considers the opportunity costs of selling to internal rather than external customers uses_______. A. the cost approach B. the general transfer pricing approach C. the market-based approach D. the opportunity cost approacharrow_forwardManagement of Green Peak Tea Company has asked you, the controller, to develop a transfer pricing system for the company. The Brewing Department of the company sells all of its product to the Bottling Department of the company. Thus the Brewing Departments sales become the Bottling Departments cost of goods sold. In order to determine an optimal transfer pricing system, management would like you to demonstrate what an income statement would look like under a cost, market, and negotiated transfer pricing structure. These various transfer prices are listed as follows. Prepare an income statement for each of the transfer prices by filling in the missing numbers in the provided income statement based on each transfer price (thus four different income statements) and calculate the operating income/loss percentage. Prepare a brief summary of the results.arrow_forwardDiscuss the advantages and disadvantages of a market-based transfer pricing approach.arrow_forward
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