question 24 1 pts When a transfer price is decreased the buying division will ch
ID: 1166619 • Letter: Q
Question
question 24
1 pts
When a transfer price is decreased
the buying division will chose to purchase less from the selling division
the buying division will chose to purchase more from the selling division
the selling division will chose to purchase less from the buying division
the selling division will chose to purchase more from the buying division
Question 25
1 pts
Which of the following is FALSE?
Maximizing division profits can sometimes lead to reducing company-wide profits
Managers of profit centers are usually given a lot of discretion in their decision making
Profit centers usually require the highest degree of attention by corporate headquarters
A manager being rewarded on division revenues has the most incentive to make good decisions for his division
Question 26
1 pts
The parent company would want to reward managers based on division revenues because
The managers usually have the least information about their divisions
It would incentivize the otherwise clueless managers about the daily activities of their divisions
The managers usually have the best information about how to run their divisions
None of the above
Explanation / Answer
1.
Transfer price is subject to upper and lower limits to promote the best interest of buying and selling the division. So the transfer price can be between the upper and lower limit. When transfer price decrease then the selling division would purchase more from the buying division.
the correct option is (d)
2.
If each division of the company is trying to maximize its profit then the entire firm would ensure profits and not reduce gains so the statement is false.
the correct option is (a)
3.
The parent company would want to reward managers based on division revenues because managers usually have the best information about how to run their divisions as the owner delegates profit maximizing task to the managers in the different divisions and rewards incentivize them to work for the benefit of the company rather their own individual profits.
the correct option is (c)
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