July Free CMA Lesson + Sample Questions: Transfer Pricing

Foreign exchange is always one of the hardest and most-dreaded topics on Part I of the CMA Exam. This month, our free video lecture is aimed at helping relieve some of that trepidation by covering Transfer Pricing. Enjoy!

Welcome back Prof. Doug Clinton of Northern Illinois University, one of our most popular CMA instructors.

In this lecture, Prof. Clinton covers the three most common transfer pricing approaches, as well as the general transfer pricing rule. You’ll learn the importance of capacity as an influence to the establishment of transfer pricing. And, if that wasn’t enough, the impact of dual pricing and tax impact is quickly covered.

Be sure to take notes!

OK, ready to test your knowledge? Most of the practice questions in Wiley CMAexcel come directly from retired IMA questions that were on past CMA Exams.

Sample Questions

1) In theory, the optimal method for establishing a transfer price is:

A. budgeted cost with or without a markup.
B. market price.
C. incremental cost.
D. flexible budget cost.

2) With respect to a firm’s transfer pricing policy, an advantage of using a dual pricing arrangement is that it:

A. promotes goal congruence between the supplying and buying subunits of the firm
B. provides an incentive for the supplying subunit to control costs
C. exposes the supplying subunit to the discipline of market prices
D. simplifies tax calculations when the buying and supplying subunits are taxed in different jurisdictions

3) Morrison’s Plastics Division, a profit center, sells its products to external customers as well as to other internal profit centers. Which one of the following circumstances would justify the Plastics Division selling a product internally to another profit center at a price that is below the market-based transfer price?

A. Routine sales commissions and collection costs would be avoided.
B. The selling unit is operating at full capacity.
C. The profit centers’ managers are evaluated on the basis of unit operating income.
D. The buying unit has excess capacity.

Answers

1) B
2) A
3) A