Question 1: True / false (9 marks) (A1) 1. Internal transfers should be preferred when there is an external market for the transferred item because there will be more control over quality and delivery 2. The transfer price will determine how profits will be shared between the two divisions 3. Residual income as a measure of performance enables fuir comparisons to be made between the performances of different divisions in the company. 4. When a transfer price is based on cost because there is no external market for the transferred item, at least one of the divisional managers is likely to consider the transfer price as unfair 5. ROI is usually measured as divisional operating profit before deducting depreciation as a percentage of the division's capital employed. 6. Residual income is calculated after deducting both depreciation on non-current assets and notional interest on the division's capital employed. 7. Performance reports allow comparisons between actual performance and budget expectations. 8. Residual income is the amount of profit left after subtracting expenses of a particular investment center. 9. Like ROI, residual income is a performance measure displayed as a ratio