Which of the following is not a method of setting transfer prices?

A$.$ Negotiated Transfer Pricing

B$.$ Cost$-$Based Transfer Pricing

C$.$ Market$-$Based Transfer Pricing

D$.$ Supplier$-$Based Transfer Pricing

$6$

What could be a potential issue with using negotiated transfer prices?

A$.$ They can lead to suboptimal decision making if the negotiating division has no control over costs.

B$.$ They can be hard to establish due to conflicts over the bargaining power of divisions.

C$.$ They can dissuade divisions from controlling costs.

D$.$ All of the above.

Which of the following is not typically a measure used in departmental performance evaluation?

A$.$ Profit Margin

B$.$ Gross Margin

C$.$ Economic Value Added $($EVA$)$

D$.$ Inventory Turnover Ratio

How would you best describe Economic Value Added $($EVA$)$ as a performance measure?

A$.$ It measures the profit earned for each dollar of sales.

B$.$ It measures the economic profit generated over and above the required return on capital.

C$.$ It measures the profit earned after subtracting the cost of capital.

D$.$ It measures the profit earned for each dollar of investment.

Which performance measure accounts for both the department's earnings and the magnitude of its invested capital?

A$.$ Net Profit Margin

B$.$ Return on Investment

C$.$ Residual Income

D$.$ Gross Margin

What is a limitation of using Residual Income $($RI$)$ as a performance measure?

A$.$ It doesn't consider the department's size.

B$.$ It deters department managers from investing in profitable projects if those projects would decrease the department's RI$.$

C$.$ It's complex and hard to comprehend.

D$.$ It doesn't take into account the department's cost structure.

$7$

What is the term 'economic value added' referring to in the context of divisional performance evaluation?

A$.$ The profit generated after all operating expenses and capital costs are deducted.

B$.$ The profit generated that surpasses the division's target ROI.

C$.$ The division's net income minus a charge for the opportunity cost of capital employed in the division.

D$.$ The division's gross income minus its indirect expenses.

In the context of project costing, the term contingency fund refers to:

A$.$ Money reserved by the customer until the completion of the project.

B$.$ Money set aside by the project manager to cover potential overruns or unexpected expenses.

C$.$ Money retained by the project manager as profit.

D$.$ Money paid by the project manager to the customer for late completion.