Unit 12: Transfer Pricing - Practice Quiz

1 What is meant by transfer price?

2 Transfer pricing is most relevant for organisations that are:

3 In transfer pricing, the division that supplies goods is called the:

4 The division that receives goods in a transfer pricing transaction is known as the:

5 Which of the following best describes the importance of transfer pricing?

6 Transfer pricing primarily affects the reported ____ of individual divisions.

7 A good transfer pricing system should promote:

8 Which of the following is an advantage of transfer pricing?

9 Transfer pricing supports which management practice by allowing divisions to operate independently?

10 Which of the following is a limitation of transfer pricing?

11 A poorly set transfer price can lead to:

12 Transfer pricing can help a division be treated as a separate:

13 Which of the following is a common problem with transfer pricing?

14 Which of the following is a recognised method of setting a transfer price?

15 Under the cost-based transfer pricing method, the transfer price is based on the:

16 In the market-based method, the transfer price is set equal to the:

17 A transfer price arrived at through discussion between the buying and selling divisions is called a:

18 If a transfer price is set at full cost plus a markup, this is an example of:

19 A division produces a component at a marginal cost of per unit and transfers it at marginal cost. The transfer price is:

20 If the full cost is and a markup of is added, the cost-plus transfer price is:

21 A transfer price is best described as the price at which:

22 The primary reason transfer pricing becomes important is the existence of:

23 In performance evaluation, a transfer price set too high will most likely:

24 Which objective is a well-designed transfer pricing system intended to promote?

25 Which of the following is an advantage of an effective transfer pricing system?

26 A common limitation of transfer pricing systems is that they may:

27 Which statement about the effect of transfer pricing on divisional autonomy is correct?

28 For a multinational group, one key advantage of transfer pricing is the ability to:

29 A limitation of using cost-based transfer prices is that they:

30 Under the market-based transfer pricing method, the transfer price is set equal to the:

31 A division has variable cost of per unit and there is no external market for the intermediate product. Using the marginal (variable) cost method with no spare capacity constraint, the transfer price would be:

32 The general economic rule for the minimum transfer price the supplying division should accept is:

33 Division A has spare capacity and variable cost of per unit. Since there is no lost external sale, the minimum transfer price it should accept is:

34 Under the cost-plus transfer pricing method, if the total cost per unit is and the mark-up is , the transfer price is:

35 The negotiated transfer pricing method involves setting the price through:

36 Division X sells externally at per unit with variable cost . If it is operating at full capacity, the minimum transfer price to Division Y should be:

37 Which method is generally considered most appropriate when a competitive external market for the intermediate product exists?

38 A drawback of the full-cost (total-cost) transfer pricing method for decision making is that it:

39 Division P (variable cost , spare capacity) transfers to Division Q, which converts and sells the final product for incurring additional variable cost of . From the group's view, internal transfer is beneficial as long as exceeds:

40 The dual transfer pricing method is used mainly to:

41 Division A can sell its intermediate product externally at $100 per unit with variable cost of $60 and no capacity constraint. Division B needs the product internally. Under the general (opportunity cost) transfer pricing rule, what is the minimum transfer price A should charge when A is operating at full capacity?

42 Using the general rule, if Division A has spare capacity (no external sales lost) with variable cost of $60 and market price $100, the minimum acceptable transfer price to A is:

43 Division X (variable cost $30, market price $50) has spare capacity for 2,000 of the 5,000 units Division Y requires; the remaining 3,000 units must displace external sales. What is the correct weighted minimum total transfer price Y should pay for all 5,000 units?

44 A cost-plus transfer price based on full cost plus markup is widely criticised because it can:

45 Division S has variable cost $40, fixed cost $20/unit, and no external market. Division B converts it and sells the final product for $110 with additional variable cost $30. If S transfers at full cost ($60), B reports a unit profit of:

46 Under a dual transfer pricing system, the selling division is typically credited at market/cost-plus price while the buying division is charged at variable cost. The main consequence is:

47 A perfectly competitive external market exists for an intermediate product. Theory recommends the transfer price be set at:

48 Division P (variable cost $45) sells externally at $70. Division Q can buy the same input externally at $65. P has spare capacity. From the company's perspective, transfers should occur if:

49 A negotiated transfer price is most likely to lead to a dysfunctional (non-goal-congruent) outcome when:

50 Division A's marginal cost function is and it transfers to Division B which faces final marginal revenue (with no external intermediate market). The optimal transfer quantity is where net marginal revenue equals A's marginal cost. If B has no further conversion cost, optimal is:

51 The two-part transfer pricing method charges the buyer variable cost per unit plus a periodic fixed fee. Its key advantage is that it:

52 A key limitation of using market-based transfer prices arises specifically when:

53 Which statement best captures a trade-off in transfer pricing design?

54 For a multinational, aggressive transfer pricing to shift profit to low-tax jurisdictions is limited primarily by:

55 Division A (capacity 10,000 units) sells 7,000 externally at $50 (variable cost $30). Division B wants 5,000 units. To satisfy B, A must sacrifice some external sales. The correct minimum transfer price for the entire 5,000-unit order is:

56 Transfer pricing is important chiefly because it simultaneously affects:

57 In a decentralised firm, a transfer price that is set too high by the supplying division is most likely to cause the buying division to:

58 Division C's variable cost is $25 and its market price is $40. Division D processes further at variable cost $35 and sells at $85. If C transfers at market price $40 while it has spare capacity, which division's decision could still be sub-optimal?

59 Which combination correctly pairs a transfer pricing method with its main weakness?

60 A group wants a transfer price that (i) motivates the buyer using true relevant cost and (ii) still lets the seller show a reasonable profit. The method that best achieves both without double-counting on consolidation issues being unmanageable is: