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Opportunity cost, transfer prices and methods, balanced scor

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1. When should opportunity cost be used in determining transfer pricing?
a. Only when no idle capacity exists.
b. Only when idle capacity exists.
c. At all times.
d. Opportunity cost should not be used in determining transfer pricing at any time.

2. When establishing transfer prices, the ceiling price represents the:
a. maximum price that the buying division is willing to pay.
b. current market price of the product.
c. minimum price that the selling division is willing to accept.
d. current market price of the product minus a profit element.

3. The Balanced Scorecard comprises four perspectives: financial, customer, internal business, and learning and growth. Within each perspective, how should managers select specific performance measures?
a. based on their potential to increase short-term profits
b. based on their fit with strategic goals
c. based on the principles of Total Quality Management
d. all of the above

4. Transfer prices should be calculated when what are transferred between two divisions of the same company?
a. goods
b. services
c. goods and services
d. managers

5. Cost-based transfer pricing methods require time and effort because external bids must be acquired and evaluated.

6. Transfer pricing issues typically occur in decentralized organization.

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Solution Preview

1) Ans c all the time. To increase firm wide profit through internal transfer.

2) Ans a. Ceiling price is the price that would leave the buying division no worse off if an input is purchased from an internal division.

3) Ans b. Balanced Scorecard is a ...

Solution Summary

Opportunity cost, transfer prices and methods, balanced scorecard