NSG 6020 Midterm Study Guide (Latest): South University (Already graded A)
NSG 6020 Midterm Study Guide
1. For which of the following patients would a comprehensive health history be appropriate?
A) A new patient with the chief complaint of “I sprained my ankle”
B) An established patient with the chief complaint of “I have an upper respiratory infection”
C) A new patient with the chief complaint of “I am here to establish care”
D) A new patient with the chief complaint of “I cut my hand”
2. Is the following information subjective or objective?
Mr. M. has shortness of breath that has persisted for the past 10 days; it is worse with activity and relieved by rest.
3. Is the following information subjective or objective?
Mr. M. has a respiratory rate of 32 and a pulse rate of 120.
4. The following information is recorded in the health history: “Patient denies chest pain, palpitations, orthopnea, and paroxysmal nocturnal dyspnea.”
Which category does it belong to?
A) Chief complaint
B) Present illness
C) Personal and social history
D) Review of systems
5. A patient presents for evaluation of a sharp, aching chest pain which increases with breathing. Which anatomic area would you localize the symptom to?
6. A 22-year-old advertising copywriter presents for evaluation of joint pain. The pain is new, located in the wrists and fingers bilaterally, with some subjective fever. The patient denies a rash; she also denies recent travel or camping activities. She has a family history significant for rheumatoid arthritis. Based on this information, which of the following pathologic processes would be the most correct?
7. A 15-year-old high school sophomore comes to the clinic for evaluation of a 3-week history of sneezing; itchy, watery eyes; clear nasal discharge; ear pain; and nonproductive cough. Which is the most likely pathologic process?
8. You are seeing an elderly man with multiple complaints. He has chronic arthritis, pain from an old war injury, and headaches. Today he complains of these pains, as well as dull chest pain under his sternum. What would the order of priority be for your problem list?
A) Arthritis, war injury pain, headaches, chest pain
B) War injury pain, arthritis, headaches, chest pain
C) Headaches, arthritis, war injury pain, chest pain
D) Chest pain, headaches, arthritis, war injury pain
9. Suzanne, a 25 year old, comes to your clinic to establish care. You are the student preparing to go into the examination room to interview her. Which of the following is the most logical sequence for the patient–provider interview?
A) Establish the agenda, negotiate a plan, establish rapport, and invite the patient's story.
B) Invite the patient's story, negotiate a plan, establish the agenda, and establish rapport.
C) Greet the patient, establish rapport, invite the patient's story, establish the agenda, expand and clarify the patient's story, and negotiate a plan.
D) Negotiate a plan, establish an agenda, invite the patient's story, and establish rapport.
10. Alexandra is a 28-year-old editor who presents to the clinic with abdominal pain. The pain is a dull ache, located in the right upper quadrant, that she rates as a 3 at the least and an 8 at the worst. The pain started a few weeks ago, it lasts for 2 to 3 hours at a time, it comes and goes, and it seems to be worse a couple of hours after eating. She has noticed that it starts after eating greasy foods, so she has cut down on these as much as she can. Initially it occurred once a week, but now it is occurring every other day. Nothing makes it better. From this description, which of the seven attributes of a symptom has been omitted?
A) Setting in which the symptom occurs
B) Associated manifestations
11. A 23-year-old graduate student comes to your clinic for evaluation of a urethral discharge. As the provider, you need to get a sexual history. Which one of the following questions is inappropriate for eliciting the information?
A) Are you sexually active?
B) When was the last time you had intimate physical contact with someone, and did that contact include sexual intercourse?
C) Do you have sex with men, women, or both?
D) How many sexual partners have you had in the last 6 months?
12. On a very busy day in the office, Mrs. Donelan, who is 81 years old, comes for her usual visit for her blood pressure. She is on a low-dose diuretic chronically and denies any side effects. Her blood pressure is 118/78 today, which is well-controlled. As you are writing her script, she mentions that it is hard not having her husband Bill around anymore. What would you do next?
A) Hand her the script and make sure she has a 3-month follow-up appointment.
B) Make sure she understands the script.
C) Ask why Bill is not there.
D) Explain that you will have more time at the next visit to discuss this.
13. When you enter your patient's examination room, his wife is waiting there with him. Which of the following is most appropriate?
A) Ask if it's okay to carry out the visit with both people in the room.
B) Carry on as you would ordinarily. The permission is implied because his wife is in the room with him.
C) Ask his wife to leave the room for reasons of confidentiality.
D) First ask his wife what she thinks is going on.
14. You are performing a young woman's first pelvic examination. You make sure to tell her verbally what is coming next and what to expect. Then you carry out each maneuver of the examination. You let her know at the outset that if she needs a break or wants to stop, this is possible. You ask several times during the examination, “How are you doing, Brittney?” What are you accomplishing with these techniques?
A) Increasing the patient's sense of control
B) Increasing the patient's trust in you as a caregiver
C) Decreasing her sense of vulnerability
D) All of the above
15. A 15-year-old high school sophomore and her mother come to your clinic because the mother is concerned about her daughter's weight. You measure her daughter's height and weight and obtain a BMI of 19.5 kg/m2. Based on this information, which of the following is appropriate?
A) Refer the patient to a nutritionist and a psychologist because the patient is anorexic.
B) Reassure the mother that this is a normal body weight.
C) Give the patient information about exercise because the patient is obese.
D) Give the patient information concerning reduction of fat and cholesterol in her diet because she is obese.
16. A 25-year-old radio announcer comes to the clinic for an annual examination. His BMI is 26.0 kg/m2. He is concerned about his weight. Based on this information, what is appropriate counsel for the patient during the visit?
A) Refer the patient to a nutritionist because he is anorexic.
B) Reassure the patient that he has a normal body weight.
C) Give the patient information about reduction of fat, cholesterol, and calories because he is overweight.
D) Give the patient information about reduction of fat and cholesterol because he is obese.
17. Common or concerning symptoms to inquire about in the General Survey and vital signs include all of the following except:
A) Changes in weight
B) Fatigue and weakness
D) Fever and chills
18. You are beginning the examination of a patient. All of the following areas are important to observe as part of the General Survey except:
A) Level of consciousness
B) Signs of distress
C) Dress, grooming, and personal hygiene
D) Blood pressure
19. Mrs. Lenzo weighs herself every day with a very accurate balance-type scale. She has noticed that over the past 2 days she has gained 4 pounds. How would you best explain this?
A) Attribute this to some overeating at the holidays.
B) Attribute this to wearing different clothing.
C) Attribute this to body fluid.
D) Attribute this to instrument inaccuracy.
20. You are seeing an older patient who has not had medical care for many years. Her vital signs taken by your office staff are: T 37.2, HR 78, BP 118/92, and RR 14, and she denies pain. You notice that she has some hypertensive changes in her retinas and you find mild proteinuria on a urine test in your office. You expected the BP to be higher. She is not on any medications. What do you think is causing this BP reading, which doesn't correlate with the other findings?
A) It is caused by an “auscultatory gap.”
B) It is caused by a cuff size error.
C) It is caused by the patient's emotional state.
D) It is caused by resolution of the process which caused her retinopathy and kidney problems.
21. Mr. Garcia comes to your office for a rash on his chest associated with a burning pain. Even a light touch causes this burning sensation to worsen. On examination, you note a rash with small blisters (vesicles) on a background of reddened skin. The rash overlies an entire rib on his right side. What type of pain is this?
A) Idiopathic pain
B) Neuropathic pain
C) Nociceptive or somatic pain
D) Psychogenic pain
22. A 50-year-old body builder is upset by a letter of denial from his life insurance company. He is very lean but has gained 2 pounds over the past 6 months. You personally performed his health assessment and found no problems whatsoever. He says he is classified as “high risk” because of obesity. What should you do next?
A) Explain that even small amounts of weight gain can classify you as obese.
B) Place him on a high-protein, low-fat diet.
C) Advise him to increase his aerobic exercise for calorie burning.
D) Measure his waist.
23. A 32-year-old white female comes to your clinic, complaining of overwhelming sadness. She says for the past 2 months she has had crying episodes, difficulty sleeping, and problems with overeating. She says she used to go out with her friends from work but now she just wants to go home and be by herself. She also thinks that her work productivity has been dropping because she just is too tired to care or concentrate. She denies any feelings of guilt or any suicidal ideation. She states that she has never felt this way in the past. She denies any recent illness or injuries. Her past medical history consists of an appendectomy when she was a teenager; otherwise, she has been healthy. She is single and works as a clerk in a medical office. She denies tobacco, alcohol, or illegal drug use. Her mother has high blood pressure and her father has had a history of mental illness. On examination you see a woman appearing her stated age who seems quite sad. Her facial expression does not change while you talk to her and she makes little eye contact. She speaks so softly you cannot always understand her. Her thought processes and content seem unremarkable.
What type of mood disorder do you think she has?
A) Dysthymic disorder
B) Manic (bipolar) disorder
C) Major depressive episode
24. A 23-year-old ticket agent is brought in by her husband because he is concerned about her recent behavior. He states that for the last 2 weeks she has been completely out of control. He says that she hasn't showered in days, stays awake most of the night cleaning their apartment, and has run up over $1,000 on their credit cards. While he is talking, the patient interrupts him frequently and declares this is all untrue and she has never been so happy and fulfilled in her whole life. She speaks very quickly, changing the subject often. After a longer than normal interview you find out she has had no recent illnesses or injuries. Her past medical history is unremarkable. Both her parents are healthy but the husband has heard rumors about an aunt with similar symptoms. She and her husband have no children. She smokes one pack of cigarettes a day (although she has been chain-smoking in the last 2 weeks), drinks four to six drinks a week, and smokes marijuana occasionally. On examination she is very loud and outspoken. Her physical examination is unremarkable.
Which mood disorder does she most likely have?
A) Major depressive episode
B) Manic episode
C) Dysthymic disorder
25. Adam is a very successful 15-year-old student and athlete. His mother brings him in today because he no longer studies, works out, or sees his friends. This has gone on for a month and a half. When you speak with him alone in the room, he states it “would be better if he were not here.” What would you do next?
A) Tell him that he has a very promising career in anything he chooses and soon he will feel better.
B) Tell him that he needs an antidepressant and it will take about 4 weeks to work.
C) Speak with his mother about getting him together more with his friends.
D) Assess his suicide risk.
26. You are speaking to an 8th grade class about health prevention and are preparing to discuss the ABCDEs of melanoma. Which of the following descriptions correctly defines the ABCDEs?
A) A = actinic; B = basal cell; C = color changes, especially blue; D = diameter >6 mm; E = evolution
B) A = asymmetry; B = irregular borders; C = color changes, especially blue; D = diameter >6 mm; E = evolution
C) A = actinic; B = irregular borders; C = keratoses; D = dystrophic nails; E = evolution
D) A = asymmetry; B = regular borders; C = color changes, especially orange; D = diameter >6 mm; E = evolution
27. You are beginning the examination of the skin on a 25-year-old teacher. You have previously elicited that she came to the office for evaluation of fatigue, weight gain, and hair loss. You strongly suspect that she has hypothyroidism. What is the expected moisture and texture of the skin of a patient with hypothyroidism?
A) Moist and smooth
B) Moist and rough
C) Dry and smooth
D) Dry and rough
28. A mother brings her 11 month old to you because her mother-in-law and others have told her that her baby is jaundiced. She is eating and growing well and performing the developmental milestones she should for her age. On examination you indeed notice a yellow tone to her skin from head to toe. Her sclerae are white. To which area should your next questions be related?
B) Family history of liver diseases
C) Family history of blood diseases
D) Ethnicity of the child
29. You are examining an unconscious patient from another region and notice Beau's lines, a transverse groove across all of her nails, about 1 cm from the proximal nail fold. What would you do next?
A) Conclude this is caused by a cultural practice.
B) Conclude this finding is most likely secondary to trauma.
C) Look for information from family and records regarding any problems which occurred 3 months ago.
D) Ask about dietary intake.
30. Jacob, a 33-year-old construction worker, complains of a “lump on his back” over his scapula. It has been there for about a year and is getting larger. He says his wife has been able to squeeze out a cheesy-textured substance on occasion. He worries this may be cancer. When gently pinched from the side, a prominent dimple forms in the middle of the mass. What is most likely?
A) An enlarged lymph node
B) A sebaceous cyst
C) An actinic keratosis
D) A malignant lesion
31. A young man comes to you with an extremely pruritic rash over his knees and elbows which has come and gone for several years. It seems to be worse in the winter and improves with some sun exposure. On examination, you notice scabbing and crusting with some silvery scale, and you are observant enough to notice small “pits” in his nails. What would account for these findings?
D) Tinea infection
32. Mrs. Anderson presents with an itchy rash which is raised and appears and disappears in various locations. Each lesion lasts for many minutes. What most likely accounts for this rash?
A) Insect bites
B) Urticaria, or hives
33. Ms. Whiting is a 68 year old who comes in for her usual follow-up visit. You notice a few flat red and purple lesions, about 6 centimeters in diameter, on the ulnar aspect of her forearms but nowhere else. She doesn't mention them. They are tender when you examine them. What should you do?
A) Conclude that these are lesions she has had for a long time.
B) Wait for her to mention them before asking further questions.
C) Ask how she acquired them.
D) Conduct the visit as usual for the patient.
34. Which of the following is a symptom involving the eye?
35. A 29-year-old physical therapist presents for evaluation of an eyelid problem. On observation, the right eyeball appears to be protruding forward. Based on this description, what is the most likely diagnosis?
36. A 12-year-old presents to the clinic with his father for evaluation of a painful lump in the left eye. It started this morning. He denies any trauma or injury. There is no visual disturbance. Upon physical examination, there is a red raised area at the margin of the eyelid that is tender to palpation; no tearing occurs with palpation of the lesion. Based on this description, what is the most likely diagnosis?
37. A 15-year-old high school sophomore presents to the emergency room with his mother for evaluation of an area of blood in the left eye. He denies trauma or injury but has been coughing forcefully with a recent cold. He denies visual disturbances, eye pain, or discharge from the eye. On physical examination, the pupils are equal, round, and reactive to light, with a visual acuity of 20/20 in each eye and 20/20 bilaterally. There is a homogeneous, sharply demarcated area at the lateral aspect of the base of the left eye. The cornea is clear. Based on this description, what is the most likely diagnosis?
B) Acute iritis
C) Corneal abrasion
D) Subconjunctival hemorrhage
38. A sudden, painless unilateral vision loss may be caused by which of the following?
A) Retinal detachment
B) Corneal ulcer
C) Acute glaucoma
39. Sudden, painful unilateral loss of vision may be caused by which of the following conditions?
A) Vitreous hemorrhage
B) Central retinal artery occlusion
C) Macular degeneration
D) Optic neuritis
40. A light is pointed at a patient's pupil, which contracts. It is also noted that the other pupil contracts as well, though it is not exposed to bright light. Which of the following terms describes this latter phenomenon?
A) Direct reaction
B) Consensual reaction
C) Near reaction
41. A patient is assigned a visual acuity of 20/100 in her left eye. Which of the following is true?
A) She obtains a 20% correct score at 100 feet.
B) She can accurately name 20% of the letters at 20 feet.
C) She can see at 20 feet what a normal person could see at 100 feet.
D) She can see at 100 feet what a normal person could see at 20 feet.
42. A patient presents with ear pain. She is an avid swimmer. The history includes pain and drainage from the left ear. On examination, she has pain when the ear is manipulated, including manipulation of the tragus. The canal is narrowed and erythematous, with some white debris in the canal. The rest of the examination is normal. What diagnosis would you assign this patient?
A) Otitis media
B) External otitis
C) Perforation of the tympanum
43. A patient with hearing loss by whisper test is further examined with a tuning fork, using the Weber and Rinne maneuvers. The abnormal results are as follows: bone conduction is greater than air on the left, and the patient hears the sound of the tuning fork better on the left. Which of the following is most likely?
A) Otosclerosis of the left ear
B) Exposure to chronic loud noise of the right ear
C) Otitis media of the right ear
D) Perforation of the right eardrum
44. A college student presents with a sore throat, fever, and fatigue for several days. You notice exudates on her enlarged tonsils. You do a careful lymphatic examination and notice some scattered small, mobile lymph nodes just behind her sternocleidomastoid muscles bilaterally. What group of nodes is this?
D) Posterior cervical
45. A 21-year-old college senior presents to your clinic, complaining of shortness of breath and a nonproductive nocturnal cough. She states she used to feel this way only with extreme exercise, but lately she has felt this way continuously. She denies any other upper respiratory symptoms, chest pain, gastrointestinal symptoms, or urinary tract symptoms. Her past medical history is significant only for seasonal allergies, for which she takes a nasal steroid spray but is otherwise on no other medications. She has had no surgeries. Her mother has allergies and eczema and her father has high blood pressure. She is an only child. She denies smoking and illegal drug use but drinks three to four alcoholic beverages per weekend. She is a junior in finance at a local university and she has recently started a job as a bartender in town. On examination she is in no acute distress and her temperature is 98.6. Her blood pressure is 120/80, her pulse is 80, and her respirations are 20. Her head, eyes, ears, nose, and throat examinations are essentially normal. Inspection of her anterior and posterior chest shows no abnormalities. On auscultation of her chest, there is decreased air movement and a high-pitched whistling on expiration in all lobes. Percussion reveals resonant lungs.
Which disorder of the thorax or lung does this best describe?
A) Spontaneous pneumothorax
B) Chronic obstructive pulmonary disease (COPD)
46. A 62-year-old construction worker presents to your clinic, complaining of almost a year of chronic cough and occasional shortness of breath. Although he has had worsening of symptoms occasionally with a cold, his symptoms have stayed about the same. The cough has occasional mucous drainage but never any blood. He denies any chest pain. He has had no weight gain, weight loss, fever, or night sweats. His past medical history is significant for high blood pressure and arthritis. He has smoked two packs a day for the past 45 years. He drinks occasionally but denies any illegal drug use. He is married and has two children. He denies any foreign travel. His father died of a heart attack and his mother died of Alzheimer's disease. On examination you see a man looking slightly older than his stated age. His blood pressure is 130/80 and his pulse is 88. He is breathing comfortably with respirations of 12. His head, eyes, ears, nose, and throat examinations are unremarkable. His cardiac examination is normal. On examination of his chest, the diameter seems enlarged. Breath sounds are decreased throughout all lobes. Rhonchi are heard over all lung fields. There is no area of dullness and no increased or decreased fremitus.
What thorax or lung disorder is most likely causing his symptoms?
A) Spontaneous pneumothorax
B) Chronic obstructive pulmonary disease (COPD)
47. A 68-year-old retired postman presents to your clinic, complaining of dull, intermittent left-sided chest pain over the last few weeks. The pain occurs after he mows his lawn or chops wood. He says that the pain radiates to the left side of his jaw but nowhere else. He has felt light-headed and nauseated with the pain but has had no other symptoms. He states when he sits down for several minutes the pain goes away. Ibuprofen, Tylenol, and antacids have not improved his symptoms. He reports no recent weight gain, weight loss, fever, or night sweats. He has a past medical history of high blood pressure and arthritis. He quit smoking 10 years ago after smoking one pack a day for 40 years. He denies any recent alcohol use and reports no drug use. He is married and has two healthy children. His mother died of breast cancer and his father died of a stroke. His younger brother has had bypass surgery. On examination you find him healthy-appearing and breathing comfortably. His blood pressure is 140/90 and he has a pulse of 80. His head, eyes, ears, nose, and throat examinations are unremarkable. His lungs have normal breath sounds and there are no abnormalities with percussion and palpation of the chest. His heart has a normal S1 and S2 and no S3 or S4. Further workup is pending.
Which disorder of the chest best describes these symptoms?
A) Angina pectoris
C) Dissecting aortic aneurysm
D) Pleural pain
48. A 36-year-old teacher presents to your clinic, complaining of sharp, knifelike pain on the left side of her chest for the last 2 days. Breathing and lying down make the pain worse, while sitting forward helps her pain. Tylenol and ibuprofen have not helped. Her pain does not radiate to any other area. She denies any upper respiratory or gastrointestinal symptoms. Her past medical history consists of systemic lupus. She is divorced and has one child. She denies any tobacco, alcohol, or drug use. Her mother has hypothyroidism and her father has high blood pressure. On examination you find her to be distressed, leaning over and holding her left arm and hand to her left chest. Her blood pressure is 130/70, her respirations are 12, and her pulse is 90. On auscultation her lung fields have normal breath sounds with no rhonchi, wheezes, or crackles. Percussion and palpation are unremarkable. Auscultation of the heart has an S1 and S2 with no S3 or S4. A scratching noise is heard at the lower left sternal border, coincident with systole; leaning forward relieves some of her pain. She is nontender with palpation of the chest wall.
What disorder of the chest best describes this disorder?
A) Angina pectoris
C) Dissecting aortic aneurysm
D) Pleural pain
49. A grandmother brings her 13-year-old grandson to you for evaluation. She noticed last week when he took off his shirt that his breastbone seemed collapsed. He seems embarrassed and tells you that it has been that way for quite awhile. He states he has no symptoms from it and he just tries not to take off his shirt in front of anyone. He denies any shortness of breath, chest pain, or lightheadedness on exertion. His past medical history is unremarkable. He is in sixth grade and just moved in with his grandmother after his father was deployed to the Middle East. His mother died several years ago in a car accident. He states that he does not smoke and has never touched alcohol. On examination you see a teenage boy appearing his stated age. On visual examination of his chest you see that the lower portion of the sternum is depressed. Auscultation of the lungs and heart are unremarkable.
What disorder of the thorax best describes your findings?
A) Barrel chest
B) Funnel chest (pectus excavatum)
C) Pigeon chest (pectus carinatum)
D) Thoracic kyphoscoliosis
50. A 55–year-old smoker complains of chest pain and gestures with a closed fist over her sternum to describe it. Which of the following diagnoses should you consider because of her gesture?
D) Angina pectoris
51. Which of the following percussion notes would you obtain over the gastric bubble?
52. Which lung sound possesses the characteristics of being louder and higher in pitch, with a short silence between inspiration and expiration and with expiration being longer than inspiration?
53. When crackles, wheezes, or rhonchi clear with a cough, which of the following is a likely etiology?
B) Simple asthma
C) Cystic fibrosis
D) Heart failure
54. What is responsible for the inspiratory splitting of S2?
A) Closure of aortic, then pulmonic valves
B) Closure of mitral, then tricuspid valves
C) Closure of aortic, then tricuspid valves
D) Closure of mitral, then pulmonic valves
55. A 25-year-old optical technician comes to your clinic for evaluation of fatigue. As part of your physical examination, you listen to her heart and hear a murmur only at the cardiac apex. Which valve is most likely to be involved, based on the location of the murmur?
56. You are screening people at the mall as part of a health fair. The first person who comes for screening has a blood pressure of 132/85. How would you categorize this?
C) Stage 1 hypertension
D) Stage 2 hypertension
57. You are conducting a workshop on the measurement of jugular venous pulsation. As part of your instruction, you tell the students to make sure that they can distinguish between the jugular venous pulsation and the carotid pulse. Which one of the following characteristics is typical of the carotid pulse?
B) Soft, rapid, undulating quality
C) Pulsation eliminated by light pressure on the vessel
D) Level of pulsation changes with changes in position
58. You are palpating the apical impulse in a patient with heart disease and find that the amplitude is diffuse and increased. Which of the following conditions could be a potential cause of an increase in the amplitude of the impulse?
B) Aortic stenosis, with pressure overload of the left ventricle
C) Mitral stenosis, with volume overload of the left atrium
59. You are performing a cardiac examination on a patient with shortness of breath and palpitations. You listen to the heart with the patient sitting upright, then have him change to a supine position, and finally have him turn onto his left side in the left lateral decubitus position. Which of the following valvular defects is best heard in this position?
60. You are concerned that a patient has an aortic regurgitation murmur. Which is the best position to accentuate the murmur?
B) Upright, but leaning forward
D) Left lateral decubitus
61. Which of the following events occurs at the start of diastole?
A) Closure of the tricuspid valve
B) Opening of the pulmonic valve
C) Closure of the aortic valve
D) Production of the first heart sound (S1)
62. Which is true of splitting of the second heart sound?
A) It is best heard over the pulmonic area with the bell of the stethoscope.
B) It normally increases with exhalation.
C) It is best heard over the apex.
D) It does not vary with respiration.
63. Which of the following is true of jugular venous pressure (JVP) measurement?
A) It is measured with the patient at a 45-degree angle.
B) The vertical height of the blood column in centimeters, plus 5 cm, is the JVP.
C) A JVP below 9 cm is abnormal.
D) It is measured above the sternal notch.
64. How much does cardiovascular risk increase for each increment of 20 mm Hg systolic and 10 mm Hg diastolic in blood pressure?
65. In measuring the jugular venous pressure (JVP), which of the following is important?
A) Keep the patient's torso at a 45-degree angle.
B) Measure the highest visible pressure, usually at end expiration.
C) Add the vertical height over the sternal notch to a 5-cm constant.
D) Realize that a total value of over 12 cm is abnormal.
66. How should you determine whether a murmur is systolic or diastolic?
A) Palpate the carotid pulse.
B) Palpate the radial pulse.
C) Judge the relative length of systole and diastole by auscultation.
D) Correlate the murmur with a bedside heart monitor.
67. Which of the following correlates with a sustained, high-amplitude PMI?
68. You are listening carefully for S2 splitting. Which of the following will help?
A) Using the diaphragm with light pressure over the 2nd right intercostal space
B) Using the bell with light pressure over the 2nd left intercostal space
C) Using the diaphragm with firm pressure over the apex
D) Using the bell with firm pressure over the lower left sternal border
69. Which of the following is true of a grade 4-intensity murmur?
A) It is moderately loud.
B) It can be heard with the stethoscope off the chest.
C) It can be heard with the stethoscope partially off the chest.
D) It is associated with a “thrill.”
70. A 44-year-old female comes to your clinic, complaining of severe dry skin in the area over her right nipple. She denies any trauma to the area. She noticed the skin change during a self-examination 2 months ago. She also admits that she had felt a lump under the nipple but kept putting off making an appointment. She does admit to 6 months of fatigue but no weight loss, weight gain, fever, or night sweats. Her past medical history is significant for hypothyroidism. She does not have a history of eczema or allergies. She denies any tobacco, alcohol, or drug use. On examination you find a middle-aged woman appearing her stated age. Inspection of her right breast reveals a scaly eczema-like crust around her nipple. Underneath you palpate a nontender 2-cm mass. The axilla contains only soft, moveable nodes. The left breast and axilla examination findings are unremarkable.
What visible skin change of the breast does she have?
A) Nipple retraction
B) Paget's disease
C) Peaud'orange sign
71. A 56-year-old female comes to your clinic, complaining of her left breast looking unusual. She says that for 2 months the angle of the nipple has changed direction. She does not do self-examinations, so she doesn't know if she has a lump. She has no history of weight loss, weight gain, fever, or night sweats. Her past medical history is significant for high blood pressure. She smokes two packs of cigarettes a day and has three to four drinks per weekend night. Her paternal aunt died of breast cancer in her forties. Her mother is healthy but her father died of prostate cancer. On examination you find a middle-aged woman appearing older than her stated age. Inspection of her left breast reveals a flattened nipple deviating toward the lateral side. On palpation the nipple feels thickened. Lateral to the areola you palpate a nontender 4-cm mass. The axilla contains several fixed nodes. The right breast and axilla examinations are unremarkable.
What visible skin change of the breast does she have?
A) Nipple retraction
B) Paget's disease
C) Peaud'orange sign
72. A 23-year-old computer programmer comes to your office for an annual examination. She has recently become sexually active and wants to be placed on birth control. Her only complaint is that the skin in her armpits has become darker. She states it looks like dirt, and she scrubs her skin nightly with soap and water but the color stays. Her past medical symptoms consist of acne and mild obesity. Her periods have been irregular for 3 years. Her mother has type 2 diabetes and her father has high blood pressure. The patient denies using tobacco but has four to five drinks on Friday and Saturday nights. She denies any illegal drug use. On examination you see a mildly obese female who is breathing comfortably. Her vital signs are unremarkable. Looking under her axilla, you see dark, velvet-like skin. Her annual examination is otherwise unremarkable.
What disorder of the breast or axilla is she most likely to have?
B) Acanthosis nigricans
C) Hidradenitis suppurativa
73. A 40-year-old mother of two presents to your office for consultation. She is interested in knowing what her relative risks are for developing breast cancer. She is concerned because her sister had unilateral breast cancer 6 years ago at age 38. The patient reports on her history that she began having periods at age 11 and has been fairly regular ever since, except during her two pregnancies. Her first child arrived when she was 26 and her second at age 28. Otherwise she has had no health problems. Her father has high blood pressure. Her mother had unilateral breast cancer in her 70s. The patient denies tobacco, alcohol, or drug use. She is a family law attorney and is married. Her examination is essentially unremarkable.
Which risk factor of her personal and family history most puts her in danger of getting breast cancer?
A) First-degree relative with premenopausal breast cancer
B) Age at menarche of less than 12
C) First live birth between the ages of 25 and 29
D) First-degree relative with postmenopausal breast cancer
74. How often, according to American Cancer Society recommendations, should a woman undergo a screening breast examination by a skilled clinician?
A) Every year
B) Every 2 years
C) Every 3 years
D) Every 4 years
75. Which of the following is most likely benign on breast examination?
A) Dimpling of the skin resembling that of an orange
B) One breast larger than the other
C) One nipple inverted
D) One breast with dimple when the patient leans forward
76. A 77-year-old retired bus driver comes to your clinic for a physical examination at his wife's request. He has recently been losing weight and has felt very fatigued. He has had no chest pain, shortness of breath, nausea, vomiting, or fever. His past medical history includes colon cancer, for which he had surgery, and arthritis. He has been married for over 40 years. He denies any tobacco or drug use and has not drunk alcohol in over 40 years. His parents both died of cancer in their 60s. On examination his vital signs are normal. His head, cardiac, and pulmonary examinations are unremarkable. On abdominal examination you hear normal bowel sounds, but when you palpate his liver it is abnormal. His rectal examination is positive for occult blood.
What further abnormality of the liver was likely found on examination?
A) Smooth, large, nontender liver
B) Irregular, large liver
C) Smooth, large, tender liver
77. A 27-year-old policewoman comes to your clinic, complaining of severe left-sided back pain radiating down into her groin. It began in the middle of the night and woke her up suddenly. It hurts in her bladder to urinate but she has no burning on the outside. She has had no frequency or urgency with urination but she has seen blood in her urine. She has had nausea with the pain but no vomiting or fever. She denies any other recent illness or injuries. Her past medical history is unremarkable. She denies tobacco or drug use and drinks alcohol rarely. Her mother has high blood pressure and her father is healthy. On examination she looks her stated age and is in obvious pain. She is lying on her left side trying to remain very still. Her cardiac, pulmonary, and abdominal examinations are unremarkable. She has tenderness just inferior to the left costovertebral angle. Her urine pregnancy test is negative and her urine analysis shows red blood cells.
What type of urinary tract pain is she most likely to have?
A) Kidney pain (from pyelonephritis)
B) Ureteral pain (from a kidney stone)
C) Musculoskeletal pain
D) Ischemic bowel pain
78. Chris is a 20-year-old college student who has had abdominal pain for 3 days. It started at his umbilicus and was associated with nausea and vomiting. He was unable to find a comfortable position. Yesterday, the pain became more severe and constant. Now, he hesitates to walk, because any motion makes the pain much worse. It is localized just medial and inferior to his iliac crest on the right. Which of the following is most likely?
A) Peptic ulcer
79. Which is the proper sequence of examination for the abdomen?
A) Auscultation, inspection, palpation, percussion
B) Inspection, percussion, palpation, auscultation
C) Inspection, auscultation, percussion, palpation
D) Auscultation, percussion, inspection, palpation
80. Mr. Patel is a 64-year-old man who was told by another care provider that his liver is enlarged. Although he is a life-long smoker, he has never used drugs or alcohol and has no knowledge of liver disease. Indeed, on examination, a liver edge is palpable 4 centimeters below the costal arch. Which of the following would you do next?
A) Check an ultrasound of the liver
B) Obtain a hepatitis panel
C) Determine liver span by percussion
D) Adopt a “watchful waiting” approach
81. Cody is a teenager with a history of leukemia and an enlarged spleen. Today he presents with fairly significant left upper quadrant pain. On examination of this area a rough grating noise is heard. What is this sound?
A) It is a splenic rub.
B) It is a variant of bowel noise.
C) It represents borborygmi.
D) It is a vascular noise.
82. You are palpating the abdomen and feel a small mass. Which of the following would you do next?
B) Examination with the abdominal muscles tensed
C) Surgery referral
D) Determine size by percussion
83. Mr. Maxwell has noticed that he is gaining weight and has increasing girth. Which of the following would argue for the presence of ascites?
A) Bilateral flank tympany
B) Dullness which remains despite change in position
C) Dullness centrally when the patient is supine
D) Tympany which changes location with patient position
84. Which of the following is consistent with obturator sign?
A) Pain distant from the site used to check rebound tenderness
B) Right hypogastric pain with the right hip and knee flexed and the hip internally rotated
C) Pain with extension of the right thigh while the patient is on her left side or while pressing her knee against your hand with thigh flexion
D) Pain that stops inhalation in the right upper quadrant
85. A 57-year-old maintenance worker comes to your office for evaluation of pain in his legs. He has smoked two packs per day since the age of 16, but he is otherwise healthy. You are concerned that he may have peripheral vascular disease. Which of the following is part of common or concerning symptoms for the peripheral vascular system?
A) Intermittent claudication
B) Chest pressure with exertion
C) Shortness of breath
D) Knee pain
86. You are a student in the vascular surgery clinic. You are asked to perform a physical examination on a patient with known peripheral vascular disease in the legs. Which of the following aspects is important to note when you perform your examination?
A) Size, symmetry, and skin color
B) Muscle bulk and tone
C) Nodules in joints
D) Lower extremity strength
87. You are assessing a patient for peripheral vascular disease in the arms, secondary to a complaint of increased weakness and a history of coronary artery disease and diabetes. You assess the brachial and radial pulses and note that they are bounding. What does that translate to on a scale of 0 to 3?
88. A 77-year-old retired nurse has an ulcer on a lower extremity that you are asked to evaluate when you do your weekly rounds at a local long-term care facility. All of the following are responsible for causing ulcers in the lower extremities except for which condition?
A) Arterial insufficiency
B) Venous insufficiency
C) Diminished sensation in pressure points
89. Asymmetric BPs are seen in which of the following conditions?
A) Coronary artery disease
B) Congenital narrowing of the aorta
C) Diffuse atherosclerosis
D) Vasculitis, as seen in systemic lupus erythematosus
90. When assessing temperature of the skin, which portion of your hand should be used?
C) Backs of fingers
D) Ulnar aspect of the hand
91. A patient presents with claudication symptoms and diminished pulses. Which of the following is consistent with chronic arterial insufficiency?
A) Pallor of the foot when raised to 60 degrees for one minute
B) Return of color to the skin within 5 seconds of allowing legs to dangle
C) Filling of the veins of the ankles within 10 seconds of allowing the legs to dangle
D) Hyperpigmentation of the skin
92. A 32-year-old white male comes to your clinic, complaining of aching on the right side of his testicle. He has felt this aching for several months. He states that as the day progresses the aching increases, but when he wakes up in the morning he is pain-free. He denies any pain with urination and states that the pain doesn't change with sexual activity. He denies any fatigue, weight gain, weight loss, fever, or night sweats. His past medical history is unremarkable. He is a married hospital administrator with two children. He notes that he and his wife have been trying to have another baby this year but have so far been unsuccessful despite frequent intercourse. He denies using tobacco, alcohol, or illegal drugs. His father has high blood pressure but his mother is healthy. On examination you see a young man appearing his stated age with unremarkable vital signs. On visualization of his penis, he is circumcised with no lesions. He has no scars along his inguinal area, and palpation of the area shows no lymphadenopathy. On palpation of his scrotum you feel testes with no discrete masses. Upon placing your finger through the right inguinal ring you feel what seems like a bunch of spaghetti. Asking him to bear down, you feel no bulges. The left inguinal ring is unremarkable, with no bulges on bearing down. His prostate examination is unremarkable.
What abnormality of the scrotum does he most likely have?
B) Scrotal hernia
C) Scrotal edema
93. A 15-year-old high school football player is brought to your office by his mother. He is complaining of severe testicular pain since exactly 8:00 this morning. He denies any sexual activity and states that he hurts so bad he can't even urinate. He is nauseated and is throwing up. He denies any recent illness or fever. His past medical history is unremarkable. He denies any tobacco, alcohol, or drug use. His parents are both in good health. On examination you see a young teenager lying on the bed with an emesis basin. He is very uncomfortable and keeps shifting his position. His blood pressure is 150/100, his pulse is 110, and his respirations are 24. On visualization of the penis he is circumcised and there are no lesions and no discharge from the meatus. His scrotal skin is tense and red. Palpation of the left testicle causes severe pain and the patient begins to cry. His prostate examination is unremarkable. His cremasteric reflex is absent on the left but is normal on the right. By catheter you get a urine sample and the analysis is unremarkable. You send the boy with his mother to the emergency room for further workup.
What is the most likely diagnosis for this young man's symptoms?
A) Acute orchitis
B) Acute epididymitis
C) Torsion of the spermatic cord
94. Which of the following conditions involves a tight prepuce which, once retracted, cannot be returned?
95. You are examining a newborn and note that the right testicle is not in the scrotum. What should you do next?
A) Refer to urology
B) Recheck in 6 months
C) Tell the parent the testicle is absent but that this should not affect fertility
D) Attempt to bring down the testis from the inguinal canal
96. Frank is a 24-year-old man who presents with multiple burning erosions on the shaft of his penis and some tender inguinal adenopathy. Which of the following is most likely?
A) Primary syphilis
B) Herpes simplex
97. A 30-year-old paralegal analyst comes to your clinic, complaining of a bad-smelling vaginal discharge with some mild itching, present for about 3 weeks. She tried douching but it did not help. She has had no pain with urination or with sexual intercourse. She has noticed the smell increased after intercourse and during her period last week. She denies any upper respiratory, gastrointestinal, cardiac, or pulmonary symptoms. Her past medical history consists of one spontaneous vaginal delivery. She is married and has one child. She denies tobacco, alcohol, or drug use. Her mother has high blood pressure and her father died from a heart disease. On examination she appears healthy and has unremarkable vital signs. On examination of the perineum there are no lesions noted. On palpation of the inguinal nodes there is no lymphadenopathy. On speculum examination a thin gray-white discharge is seen in the vault. The pH of the discharge is over 4.5 and there is a fishy odor when potassium hydroxide (KOH) is applied to the vaginal secretions on the slide. Wet prep shows epithelial cells with stippled borders (clue cells).
What type of vaginitis best describes her findings?
A) Trichomonas vaginitis
B) Candida vaginitis
C) Bacterial vaginosis
D) Atrophic vaginitis
98. A 48-year-old high school librarian comes to your clinic, complaining of 1 week of heavy discharge causing severe itching. She is not presently sexually active and has had no burning with urination. The symptoms started several days after her last period. She just finished a course of antibiotics for a sinus infection. Her past medical history consists of type 2 diabetes and high blood pressure. She is widowed and has three children. She denies tobacco, alcohol, or drug use. Her mother has high blood pressure and her father died of diabetes complications. On examination you see a healthy-appearing woman. Her blood pressure is 130/80 and her pulse is 70. Her head, eyes, ears, nose, throat, cardiac, lung, and abdominal examinations are unremarkable. Palpation of the inguinal lymph nodes is unremarkable. On visualization of the vulva, a thick, white, curdy discharge is seen at the introitus. On speculum examination there is a copious amount of this discharge. The pH of the discharge is 4.1 and the KOH whiff test is negative, with no unusual smell. Wet prep shows budding hyphae.
What vaginitis does this patient most likely have?
A) Trichomonas vaginitis
B) Candida vaginitis
C) Bacterial vaginosis
D) Atrophic vaginitis
99. A 55-year-old married homemaker comes to your clinic, complaining of 6 months of vaginal itching and discomfort with intercourse. She has not had a discharge and has had no pain with urination. She has not had a period in over 2 years. She has no other symptoms. Her past medical history consists of removal of her gallbladder. She denies use of tobacco, alcohol, and illegal drugs. Her mother has breast cancer and her father has coronary artery disease, high blood pressure, and Alzheimer's disease. On examination she appears healthy and has unremarkable vital signs. There is no lymphadenopathy with palpation of the inguinal nodes. Visualization of the vulva shows dry skin but no lesions or masses. The labia are somewhat smaller than usual. Speculum examination reveals scant discharge and the vaginal walls are red, dry, and bleed easily. Bimanual examination is unremarkable. The KOH whiff test produces no unusual odor and there are no clue cells on the wet prep.
What form of vaginitis is this patient most likely to have?
A) Trichomonas vaginitis
B) Candida vaginitis
C) Bacterial vaginosis
D) Atrophic vaginitis
100. A 28-year-old married clothing sales clerk comes to your clinic for her annual examination. She requests a refill on her birth control pills. Her only complaint is painless bleeding after intercourse. She denies any other symptoms. Her past medical history consists of two spontaneous vaginal deliveries. Her past six Pap smears have all been normal. She is married and has two children. Her mother is in good health and her father has high blood pressure. On examination you see a young woman appearing healthy and relaxed. Her vital signs are unremarkable and her head, eyes, ears, throat, neck, cardiac, lung, and abdominal examinations are normal. Visualization of the perineum shows no lesions or masses. Speculum examination shows a red mass at the os. On taking a Pap smear the mass bleeds easily. Bimanual examination shows no cervical motion tenderness and both ovaries are palpated and nontender.
What is the most likely diagnosis for the abnormality of her cervix?
A) Carcinoma of the cervix
B) Mucopurulent cervicitis
C) Cervical polyp
D) Retention cyst
101. A 23-year-old waitress comes to your clinic complaining of severe pelvic pain radiating to her right side. The pain began yesterday and is getting much worse. She has had no burning with urination and denies any recent sexual activity. She has no nausea, vomiting, constipation, diarrhea, fever, or vaginal discharge. Her last period was 3 to 4 weeks ago. Her past medical history consists of severe acne, depression, and mild obesity. She has had no surgeries. She broke up with her boyfriend 6 months ago and denies dating anyone else. She smokes one pack of cigarettes a day, drinks three to four beers two to three times a week, and denies any illegal drug use. Her mother is diabetic and her father has coronary artery disease. On examination you see a mildly obese female in moderate distress. Her blood pressure is 130/80 and her pulse is 90. She is afebrile. On auscultation she has active bowel sounds. She has no rebound or guarding in any abdominal quadrant. Speculum examination shows no lesions on the cervix and no discharge or bleeding from the os. During the bimanual examination she has no cervical motion tenderness, but her right adnexal area is swollen and tender. A urine analysis is normal and the urine pregnancy test is pending.
What disorder of the adnexa is most likely the diagnosis?
A) Ovarian cyst
B) Tubal pregnancy
C) Pelvic inflammatory disease
102. Which of the following represents metrorrhagia?
A) Fewer than 21 days between menses
B) Excessive flow
C) Infrequent bleeding
D) Bleeding between periods
103. Abby is a newly married woman who is unable to have intercourse because of vaginismus. Which of the following is true?
A) This is most likely due to lack of lubrication.
B) This is most likely due to atrophic vaginitis.
C) This is most likely due to pressure on an ovary.
D) Psychosocial reasons may cause this condition.
104. Which of the following is true of the HPV vaccine?
A) Ideally it should be administered within 3 years of first intercourse.
B) It covers against almost every HPV type.
C) It can be used as adjuvant therapy in cervical cancer.
D) It can protect against anogenital lesions.
105. A 42-year-old house painter comes to your clinic, complaining of pain with defecation and profuse bleeding in the toilet after a bowel movement. He was in his usual state of health until 2 weeks ago, when he was injured in a car accident. After the accident he began taking prescription narcotics for the pain in his shoulder. Since then he has had very few bowel movements. His stool is hard and pebble-like. He states he has always been “regular” in the past, with easy bowel movements. His diet has not changed but he states that he is exercising less since the accident. His past medical history includes hypertension and he is on a low-dose diuretic. He has had no other chronic illnesses or surgeries. He has a family history of hypertension, coronary heart disease, and diabetes but no cancer. He is divorced and has three children. He smokes two packs of cigarettes per day and quit drinking more than 10 years ago. He has had no recent weight loss, weight gain, fever, or night sweats. On examination he appears muscular and healthy; he is afebrile. His blood pressure is 135/90 with a pulse of 80. His cardiac, lung, and abdominal examinations are normal. He is wearing a sling on his left arm. On observation of his anus you find a swollen bluish ovoid mass that appears to contain a blood clot. Digital rectal examination is extremely painful for the patient. No other mass is palpated within the anus or rectum.
What disorder of the anus is this patient likely to have?
A) Anal fissure
B) External hemorrhoid
C) Anorectal cancer
D) Internal hemorrhoid
106. A 60-year-old coach comes to your clinic, complaining of difficulty starting to urinate for the last several months. He believes the problem is steadily getting worse. When asked he says he has a very weak stream and it feels like it takes 10 minutes to empty his bladder. He also has the urge to go to the bathroom more often than he used to. He denies any blood or sediment in his urine and any pain with urination. He has had no fever, weight gain, weight loss, or night sweats. His medical history includes type 2 diabetes and high blood pressure treated with medications. He does not smoke but drinks a six pack of beer weekly. He has been married for 35 years. His mother died of a myocardial infarction in her 70s and his father is currently in his 80s with high blood pressure and arthritis. On examination you see a mildly obese male who is alert and cooperative. His blood pressure is 130/70 with a heart rate of 80. He is afebrile and his cardiac, lung, and abdominal examinations are normal. On visualization of the anus you see no inflammation, masses, or fissures. Digital rectal examination reveals a smooth, enlarged prostate. No discrete masses are felt. There is no blood on the glove or on guaiac testing. An analysis of the urine shows no red blood cells, white blood cells, or bacteria.
What disorder of the anus, rectum, or prostate is this most likely to be?
A) Benign prostatic hyperplasia (BPH)
C) Prostate cancer
D) Anorectal cancer
107. A 45-year-old African-American minister comes to your clinic for a general physical examination. He has not been feeling very well for about 3 months, including night sweats and a chronic low-grade fever of 100 to 101 degrees. He denies any upper respiratory symptoms, chest pain, nausea, constipation, diarrhea, blood in his stool, or urinary tract symptoms. He has had some lower back pain. He has a past history of difficult-to-control high blood pressure and high cholesterol. He has had no surgeries in the past. His mother has diabetes and high blood pressure. He knows very little about his father because his parents divorced when he was young. He knows his father died in his 50s, but he is unsure of the exact cause. The patient denies smoking, drinking, or drug use. He is married and has three children. On examination he appears his stated age and is generally fit. His temperature is 99.9 degrees and his blood pressure is 160/90. His head, ears, nose, throat, and neck examinations are normal. His cardiac, lung, and abdominal examinations are also normal. On visualization of the anus there is no inflammation, masses, or fissures. Digital rectal examination elicits an irregular, asymmetric, hard nodule on the otherwise normal posterior surface of the prostate. Examination of the scrotum and penis are normal. Laboratory results are pending.
What disorder of the anus, rectum, or prostate is mostly likely in this case?
A) Benign prostatic hyperplasia (BPH)
C) Prostate cancer
D) Anorectal cancer
108. Which is true of the pectinate or dentate line?
A) It is a palpable landmark.
B) It demarcates the areas supplied by the central nervous system from the peripheral nervous system.
C) It is the border between the anal canal and the rectum.
D) It is not visible on proctoscopic examination.
109. Which is a sign of benign prostatic hyperplasia?
A) Weight loss
B) Bone pain
110. Important techniques in performing the rectal examination include which of the following?
B) Waiting for the sphincter to relax
C) Explaining what the patient should expect with each step before it occurs
D) All of the above
111. An elderly woman with dementia is brought in by her daughter for a “rectal mass.” On examination you notice a moist pink mass protruding from the anus, which is nontender. It is soft and does not have any associated bleeding. Which of the following is most likely?
A) Rectal prolapse
B) External hemorrhoid
C) Perianal fistula
D) Prolapsed internal hemorrhoid
CHAPTER 22 MANAGEMENT CONTROL SYSTEMS, TRANSFER PRICING, AND MULTINATIONAL CONSIDERATIONS. 100% Correct
22-1 What is a management control system?
22-2 Describe three criteria you would use to evaluate whether a management control system is effective.
22-3 What is the relationship among motivation, goal congruence, and effort?
798 CHAPTER 22 MANAGEMENT CONTROL SYSTEMS, TRANSFER PRICING, AND MULTINATIONAL CONSIDERATIONS
22-4 Name three benefits and two costs of decentralization.
22-5 “Organizations typically adopt a consistent decentralization or centralization philosophy across
all their business functions.” Do you agree? Explain.
22-6 “Transfer pricing is confined to profit centers.” Do you agree? Explain.
22-7 What are the three methods for determining transfer prices?
22-8 What properties should transfer-pricing systems have?
22-9 “All transfer-pricing methods give the same division operating income.” Do you agree? Explain.
22-10 Under what conditions is a market-based transfer price optimal?
22-11 What is one potential limitation of full-cost-based transfer prices?
22-12 Give two reasons why the dual-pricing system of transfer pricing is not widely used.
22-13 “Cost and price information play no role in negotiated transfer prices.” Do you agree? Explain.
22-14 “Under the general guideline for transfer pricing, the minimum transfer price will vary depending
on whether the supplying division has unused capacity or not.” Do you agree? Explain.
22-15 How should managers consider income tax issues when choosing a transfer-pricing method?
22-16 Evaluating management control systems, balanced scorecard. Adventure Parks Inc. (API) operates ten theme parks throughout the United States. The company’s slogan is “Name Your Adventure,” and
its mission is to offer an exciting theme park experience to visitors of all ages. API’s corporate strategy supports this mission by stressing the importance of sparkling clean surroundings, efficient crowd management
and, above all, cheerful employees. Of course, improved shareholder value drives this strategy.
Required 1. Assuming that API uses a balanced scorecard approach (see Chapter 13) to formulating its manage
ment control system. List three measures that API might use to evaluate each of the four balanced
scorecard perspectives: financial perspective, customer perspective, internal-business-process perspective, and learning-and-growth perspective.
2. How would the management controls related to financial and customer perspectives at API differ
between the following three managers: a souvenir shop manager, a park general manager, and the
22-17 Cost centers, profit centers, decentralization, transfer prices. Fenster Corporation manufactures
windows with wood and metal frames. Fenster has three departments: glass, wood, and metal. The glass
department makes the window glass and sends it to either the wood or metal department where the glass is
framed. The window is then sold. Upper management sets the production schedules for the three departments and evaluates them on output quantity, cost variances, and product quality.
Required 1. Are the three departments cost centers, revenue centers, or profit centers?
2. Are the three departments centralized or decentralized?
3. Can a centralized department be a profit center? Why or why not?
4. Suppose the upper management of Fenster Corporation decides to let the three departments set their
own production schedules, buy and sell products in the external market, and have the wood and metal
departments negotiate with the glass department for the glass panes using a transfer price.
a. Will this change your answers to requirements 1 and 2?
b. How would you recommend upper management evaluate the three departments if this change is made?
22-18 Benefits and costs of decentralization. Jackson Markets, a chain of traditional supermarkets, is
interested in gaining access to the organic and health food retail market by acquiring a regional company in
that sector. Jackson intends to operate the newly-acquired stores independently from its supermarkets.
One of the prospects is Health Source, a chain of twenty stores in the mid-Atlantic. Buying for all
twenty stores is done by the company’s central office. Store managers must follow strict guidelines for all
aspects of store management in an attempt to maintain consistency among stores. Store managers are
evaluated on the basis of achieving profit goals developed by the central office.
The other prospect is Harvest Moon, a chain of thirty stores in the Northeast. Harvest Moon managers
are given significant flexibility in product offerings, allowing them to negotiate purchases with local organic
farmers. Store managers are rewarded for exceeding self-developed return on investment goals with company stock options. Some managers have become significant shareholders in the company, and have even
decided on their own to open additional store locations to improve market penetration. However, the
increased autonomy has led to competition and price cutting among Harvest Moon stores within the same
geographic market, resulting in lower margins.
Required 1. Would you describe Health Source as having a centralized or a decentralized structure? Explain.
2. Would you describe Harvest Moon as having a centralized or a decentralized structure? Discuss some
of the benefits and costs of that type of structure.
ASSIGNMENT MATERIAL 799
3. Would stores in each chain be considered cost centers, revenue centers, profit centers, or investment
centers? How does that tie into the evaluation of store managers?
4. Assume that Jackson chooses to acquire Harvest Moon. What steps can Jackson take to improve goal
congruence between store managers and the larger company?
22-19 Multinational transfer pricing, effect of alternative transfer-pricing methods, global income tax
minimization. Tech Friendly Computer, Inc., with headquarters in San Francisco, manufactures and sells a
desktop computer. Tech Friendly has three divisions, each of which is located in a different country:
a. China division—manufactures memory devices and keyboards
b. South Korea division—assembles desktop computers using locally manufactured parts, along with
memory devices and keyboards from the China division
c. U.S. division—packages and distributes desktop computers
Each division is run as a profit center. The costs for the work done in each division for a single desktop computer are as follows:
Chinese income tax rate on the China division’s operating income: 40%
South Korean income tax rate on the South Korea division’s operating income: 20%
U.S. income tax rate on the U.S. division’s operating income: 30%
Each desktop computer is sold to retail outlets in the United States for $3,800. Assume that the current foreign exchange rates are as follows:
Both the China and the South Korea divisions sell part of their production under a private label. The China
division sells the comparable memory/keyboard package used in each Tech Friendly desktop computer to a
Chinese manufacturer for 4,500 yuan. The South Korea division sells the comparable desktop computer to a
South Korean distributor for 1,340,000 won.
1,000 won = $1 U.S.
9 yuan = $1 U.S.
Fixed cost = $325
U.S. division: Variable cost = $125
Fixed cost = 470,000 won
South Korea division: Variable cost = 350,000 won
Fixed cost = 1,980 yuan
China division: Variable cost = 900 yuan
1. Calculate the after-tax operating income per unit earned by each division under the following transfer- Required
pricing methods: (a) market price, (b) 200% of full cost, and (c) 350% of variable cost. (Income taxes are
not included in the computation of the cost-based transfer prices.)
2. Which transfer-pricing method(s) will maximize the after-tax operating income per unit of Tech
22-20 Transfer-pricing methods, goal congruence. British Columbia Lumber has a raw lumber division
and a finished lumber division. The variable costs are as follows:
Raw lumber division: $100 per 100 board-feet of raw lumber
Finished lumber division: $125 per 100 board-feet of finished lumber
Assume that there is no board-feet loss in processing raw lumber into finished lumber. Raw lumber can be
sold at $200 per 100 board-feet. Finished lumber can be sold at $275 per 100 board-feet.
1. Should British Columbia Lumber process raw lumber into its finished form? Show your calculations. Required
2. Assume that internal transfers are made at 110% of variable cost. Will each division maximize its division operating-income contribution by adopting the action that is in the best interest of British
Columbia Lumber as a whole? Explain.
3. Assume that internal transfers are made at market prices. Will each division maximize its division
operating-income contribution by adopting the action that is in the best interest of British Columbia
Lumber as a whole? Explain.
22-21 Effect of alternative transfer-pricing methods on division operating income. (CMA, adapted)
Ajax Corporation has two divisions. The mining division makes toldine, which is then transferred to the
metals division. The toldine is further processed by the metals division and is sold to customers at a price
of $150 per unit. The mining division is currently required by Ajax to transfer its total yearly output of
800 CHAPTER 22 MANAGEMENT CONTROL SYSTEMS, TRANSFER PRICING, AND MULTINATIONAL CONSIDERATIONS
200,000 units of toldine to the metals division at 110% of full manufacturing cost. Unlimited quantities of toldine can be purchased and sold on the outside market at $90 per unit.
The following table gives the manufacturing cost per unit in the mining and metals divisions for 2012:
Mining Division Metals Division
Direct material cost
Direct manufacturing labor cost
Manufacturing overhead cost
Total manufacturing cost per unit $12
$60 $ 6
aManufacturing overhead costs in the mining division are 25% fixed and 75% variable.
bManufacturing overhead costs in the metals division are 60% fixed and 40% variable.
U.S. income tax rate on the U.S. division’s operating income
Austrian income tax rate on the Austrian division’s operating income
Austrian import duty
Variable manufacturing cost per unit of Product 4A36
Full manufacturing cost per unit of Product 4A36
Selling price (net of marketing and distribution costs) in Austria 35%
Required 1. Calculate the operating incomes for the mining and metals divisions for the 200,000 units of toldine trans
ferred under the following transfer-pricing methods: (a) market price and (b) 110% of full manufacturing cost.
2. Suppose Ajax rewards each division manager with a bonus, calculated as 1% of division operating
income (if positive). What is the amount of bonus that will be paid to each division manager under the
transfer-pricing methods in requirement 1? Which transfer-pricing method will each division manager
prefer to use?
3. What arguments would Brian Jones, manager of the mining division, make to support the transferpricing method that he prefers?
22-22 Transfer pricing, general guideline, goal congruence. (CMA, adapted). Quest Motors, Inc., operates
as a decentralized multidivision company. The Vivo division of Quest Motors purchases most of its airbags from
the airbag division. The airbag division’s incremental cost for manufacturing the airbags is $90 per unit. The
airbag division is currently working at 80% of capacity. The current market price of the airbags is $125 per unit.
Required 1. Using the general guideline presented in the chapter, what is the minimum price at which the airbag
division would sell airbags to the Vivo division?
2. Suppose that Quest Motors requires that whenever divisions with unused capacity sell products internally, they must do so at the incremental cost. Evaluate this transfer-pricing policy using the criteria of
goal congruence, evaluating division performance, motivating management effort, and preserving division autonomy.
3. If the two divisions were to negotiate a transfer price, what is the range of possible transfer prices?
Evaluate this negotiated transfer-pricing policy using the criteria of goal congruence, evaluating division performance, motivating management effort, and preserving division autonomy.
4. Instead of allowing negotiation, suppose that Quest specifies a hybrid transfer price that “splits the difference” between the minimum and maximum prices from the divisions’ standpoint. What would be the
resulting transfer price for airbags?
22-23 Multinational transfer pricing, global tax minimization. The Mornay Company manufactures
telecommunications equipment at its plant in Toledo, Ohio. The company has marketing divisions throughout
the world. A Mornay marketing division in Vienna, Austria, imports 10,000 units of Product 4A36 from the
United States. The following information is available:
Suppose the United States and Austrian tax authorities only allow transfer prices that are between the full
manufacturing cost per unit of $800 and a market price of $950, based on comparable imports into Austria.
The Austrian import duty is charged on the price at which the product is transferred into Austria. Any import
duty paid to the Austrian authorities is a deductible expense for calculating Austrian income taxes due.
Required 1. Calculate the after-tax operating income earned by the United States and Austrian divisions from
transferring 10,000 units of Product 4A36 (a) at full manufacturing cost per unit and (b) at market
price of comparable imports. (Income taxes are not included in the computation of the cost-based
2. Which transfer price should the Mornay Company select to minimize the total of company import duties
and income taxes? Remember that the transfer price must be between the full manufacturing cost per
22-24 Multinational transfer pricing, goal congruence (continuation of 22-23). Suppose that the U.S.
division could sell as many units of Product 4A36 as it makes at $900 per unit in the U.S. market, net of all
marketing and distribution costs.
1. From the viewpoint of the Mornay Company as a whole, would after-tax operating income be maximized Required
if it sold the 10,000 units of Product 4A36 in the United States or in Austria? Show your computations.
2. Suppose division managers act autonomously to maximize their division’s after-tax operating income.
Will the transfer price calculated in requirement 2 of Exercise 22-23 result in the U.S. division manager
taking the actions determined to be optimal in requirement 1 of this exercise? Explain.
3. What is the minimum transfer price that the U.S. division manager would agree to? Does this transfer
price result in the Mornay Company as a whole paying more import duty and taxes than the answer to
requirement 2 of Exercise 22-23? If so, by how much?
22-25 Transfer-pricing dispute. The Allison-Chambers Corporation, manufacturer of tractors and other
heavy farm equipment, is organized along decentralized product lines, with each manufacturing division
operating as a separate profit center. Each division manager has been delegated full authority on all decisions involving the sale of that division’s output both to outsiders and to other divisions of Allison-Chambers.
Division C has in the past always purchased its requirement of a particular tractor-engine component from
division A. However, when informed that division A is increasing its selling price to $150, division C’s manager decides to purchase the engine component from external suppliers.
Division C can purchase the component for $135 per unit in the open market. Division A insists that,
because of the recent installation of some highly specialized equipment and the resulting high depreciation
charges, it will not be able to earn an adequate return on its investment unless it raises its price. Division A’s
manager appeals to top management of Allison-Chambers for support in the dispute with division C and supplies the following operating data:
C’s annual purchases of the tractor-engine component 1,000 units
A’s variable cost per unit of the tractor-engine component $120
A’s fixed cost per unit of the tractor-engine component $ 20
1. Assume that there are no alternative uses for internal facilities of division A. Determine whether the com- Required
pany as a whole will benefit if division C purchases the component from external suppliers for $135 per
unit. What should the transfer price for the component be set at so that division managers acting in their
own divisions’ best interests take actions that are also in the best interest of the company as a whole?
2. Assume that internal facilities of division A would not otherwise be idle. By not producing the
1,000 units for division C, division A’s equipment and other facilities would be used for other production
operations that would result in annual cash-operating savings of $18,000. Should division C purchase
from external suppliers? Show your computations.
3. Assume that there are no alternative uses for division A’s internal facilities and that the price from outsiders drops $20. Should division C purchase from external suppliers? What should the transfer price
for the component be set at so that division managers acting in their own divisions’ best interests take
actions that are also in the best interest of the company as a whole?
22-26 Transfer-pricing problem (continuation of 22-25). Refer to Exercise 22-25. Assume that division A
can sell the 1,000 units to other customers at $155 per unit, with variable marketing cost of $5 per unit.
Determine whether Allison-Chambers will benefit if division C purchases the 1,000 units from external sup- Required
pliers at $135 per unit. Show your computations.
22-27 General guideline, transfer pricing. The Slate Company manufactures and sells television sets. Its
assembly division (AD) buys television screens from the screen division (SD) and assembles the TV sets.
The SD, which is operating at capacity, incurs an incremental manufacturing cost of $65 per screen. The SD
can sell all its output to the outside market at a price of $100 per screen, after incurring a variable marketing
and distribution cost of $8 per screen. If the AD purchases screens from outside suppliers at a price of
$100 per screen, it will incur a variable purchasing cost of $7 per screen. Slate’s division managers can act
autonomously to maximize their own division’s operating income.
1. What is the minimum transfer price at which the SD manager would be willing to sell screens to the AD? Required
2. What is the maximum transfer price at which the AD manager would be willing to purchase screens
from the SD?
3. Now suppose that the SD can sell only 70% of its output capacity of 20,000 screens per month on the
open market. Capacity cannot be reduced in the short run. The AD can assemble and sell more than
20,000 TV sets per month.
a. What is the minimum transfer price at which the SD manager would be willing to sell screens to the AD?
802 CHAPTER 22 MANAGEMENT CONTROL SYSTEMS, TRANSFER PRICING, AND MULTINATIONAL CONSIDERATIONS
b. From the point of view of Slate’s management, how much of the SD output should be transferred to
c. If Slate mandates the SD and AD managers to “split the difference” on the minimum and maximum
transfer prices they would be willing to negotiate over, what would be the resulting transfer price?
Does this price achieve the outcome desired in requirement 3b?
22-28 Pertinent transfer price. Europa, Inc., has two divisions, A and B, that manufacture expensive
bicycles. Division A produces the bicycle frame, and division B assembles the rest of the bicycle onto the
frame. There is a market for both the subassembly and the final product. Each division has been designated
as a profit center. The transfer price for the subassembly has been set at the long-run average market price.
The following data are available for each division:
Selling price for final product $300
Long-run average selling price for intermediate product 200
Incremental cost per unit for completion in division B 150
Incremental cost per unit in division A 120
Selling price for final product
Transferred-in cost per unit (market)
Incremental cost per unit for completion
Contribution (loss) on product $300
The manager of division B has made the following calculation:
Should transfers be made to division B if there is no unused capacity in division A? Is the market price
the correct transfer price? Show your computations.
2. Assume that division A’s maximum capacity for this product is 1,000 units per month and sales to the
intermediate market are now 800 units. Should 200 units be transferred to division B? At what transfer
price? Assume that for a variety of reasons, division A will maintain the $200 selling price indefinitely.
That is, division A is not considering lowering the price to outsiders even if idle capacity exists.
3. Suppose division A quoted a transfer price of $150 for up to 200 units. What would be the contribution
to the company as a whole if a transfer were made? As manager of division B, would you be inclined to
buy at $150? Explain.
22-29 Pricing in imperfect markets (continuation of 22-28). Refer to Problem 22-28.
Required 1. Suppose the manager of division A has the option of (a) cutting the external price to $195, with the certainty that sales will rise to 1,000 units or (b) maintaining the external price of $200 for the 800 units and
transferring the 200 units to division B at a price that would produce the same operating income for
division A. What transfer price would produce the same operating income for division A? Is that price
consistent with that recommended by the general guideline in the chapter so that the resulting decision would be desirable for the company as a whole?
2. Suppose that if the selling price for the intermediate product were dropped to $195, sales to external
parties could be increased to 900 units. Division B wants to acquire as many as 200 units if the transfer
price is acceptable. For simplicity, assume that there is no external market for the final 100 units of division A’s capacity.
a. Using the general guideline, what is (are) the minimum transfer price(s) that should lead to the correct economic decision? Ignore performance-evaluation considerations.
b. Compare the total contributions under the alternatives to show why the transfer price(s) recommended lead(s) to the optimal economic decision.
22-30 Effect of alternative transfer-pricing methods on division operating income. Crango Products is a
cranberry cooperative that operates two divisions, a harvesting division and a processing division. Currently, all
of harvesting’s output is converted into cranberry juice by the processing division, and the juice is sold to large
beverage companies that produce cranberry juice blends. The processing division has a yield of 500 gallons of
juice per 1,000 pounds of cranberries. Cost and market price data for the two divisions are as follows:
Harvesting Division Processing Division
Variable cost per pound of cranberries $0.10 Variable processing cost per gallon of juice produced $0.20
Fixed cost per pound of cranberries $0.25 Fixed cost per gallon of juice produced $0.40
Selling price per pound of cranberries in outside market $0.60 Selling price per gallon of juice $2.10
ASSIGNMENT MATERIAL 803
1. Compute Crango’s operating income from harvesting 400,000 pounds of cranberries during June 2012 Required
and processing them into juice.
2. Crango rewards its division managers with a bonus equal to 5% of operating income. Compute the
bonus earned by each division manager in June 2012 for each of the following transfer pricing methods:
a. 200% of full cost
b. Market price
3. Which transfer-pricing method will each division manager prefer? How might Crango resolve any conflicts that may arise on the issue of transfer pricing?
22-31 Goal-congruence problems with cost-plus transfer-pricing methods, dual-pricing system
(continuation of 22-30). Assume that Pat Borges, CEO of Crango, had mandated a transfer price equal to
200% of full cost. Now he decides to decentralize some management decisions and sends around a memo
that states the following: “Effective immediately, each division of Crango is free to make its own decisions
regarding the purchase of direct materials and the sale of finished products.”
1. Give an example of a goal-congruence problem that will arise if Crango continues to use a transfer Required
price of 200% of full cost and Borges’s decentralization policy is adopted.
2. Borges feels that a dual transfer-pricing policy will improve goal congruence. He suggests that transfers
out of the harvesting division be made at 200% of full cost and transfers into the processing division be
made at market price. Compute the operating income of each division under this dual transfer pricing
method when 400,000 pounds of cranberries are harvested during June 2012 and processed into juice.
3. Why is the sum of the division operating incomes computed in requirement 2 different from Crango’s
operating income from harvesting and processing 400,000 pounds of cranberries?
4. Suggest two problems that may arise if Crango implements the dual transfer prices described in
22-32 Multinational transfer pricing, global tax minimization. Industrial Diamonds, Inc., based in
Los Angeles, has two divisions:
South African mining division, which mines a rich diamond vein in South Africa
U.S. processing division, which polishes raw diamonds for use in industrial cutting tools
The processing division’s yield is 50%: It takes 2 pounds of raw diamonds to produce 1 pound of top-quality polished industrial diamonds. Although all of the mining division’s output of 8,000 pounds of raw diamonds is sent for
processing in the United States, there is also an active market for raw diamonds in South Africa. The foreign
exchange rate is 6 ZAR (South African Rand) = $1 U.S. The following information is known about the two divisions:
1 South African Mining Division
2 Variable cost per pound of raw diamonds 600 ZAR
3 Fixed cost per pound of raw diamonds 1,200 ZAR
4 Market price per pound of raw diamonds 3,600 ZAR
A B C D F G
5 Tax rate 25%
7 U.S. Processing Division
8 Variable cost per pound of polished diamonds 220 U.S. dollars
9 Fixed cost per pound of polished diamonds 850 U.S. dollars
Market price per pound of polished diamonds 10 3,500 U.S. dollars
11 Tax rate 40%
1. Compute the annual pretax operating income, in U.S. dollars, of each division under the following Required
transfer-pricing methods: (a) 250% of full cost and (b) market price.
2. Compute the after-tax operating income, in U.S. dollars, for each division under the transfer-pricing
methods in requirement 1. (Income taxes are not included in the computation of cost-based transfer
price, and Industrial Diamonds does not pay U.S. income tax on income already taxed in South Africa.)
3. If the two division managers are compensated based on after-tax division operating income, which
transfer-pricing method will each prefer? Which transfer-pricing method will maximize the total aftertax operating income of Industrial Diamonds?
4. In addition to tax minimization, what other factors might Industrial Diamonds consider in choosing a
804 CHAPTER 22 MANAGEMENT CONTROL SYSTEMS, TRANSFER PRICING, AND MULTINATIONAL CONSIDERATIONS
22-33 International transfer pricing, taxes, goal congruence. Argone division of Gemini Corporation is
located in the United States. Its effective income tax rate is 30%. Another division of Gemini, Calcia, is located
in Canada, where the income tax rate is 42%. Calcia manufactures, among other things, an intermediate product for Argone called IP-2007. Calcia operates at capacity and makes 15,000 units of IP-2007 for Argone each
period, at a variable cost of $60 per unit. Assume that there are no outside customers for IP-2007. Because
the IP-2007 must be shipped from Canada to the United States, it costs Calcia an additional $4 per unit to ship
the IP-2007 to Argone. There are no direct fixed costs for IP-2007. Calcia also manufactures other products.
A product similar to IP-2007 that Argone could use as a substitute is available in the United States for
$75 per unit.
Required 1. What is the minimum and maximum transfer price that would be acceptable to Argone and Calcia for
IP-2007, and why?
2. What transfer price would minimize income taxes for Gemini Corporation as a whole? Would Calcia
and Argone want to be evaluated on operating income using this transfer price?
3. Suppose Gemini uses the transfer price from requirement 2, and each division is evaluated on its
own after-tax division operating income. Now suppose Calcia has an opportunity to sell 8,000 units
of IP-2007 to an outside customer for $68 each. Calcia will not incur shipping costs because the customer is nearby and offers to pay for shipping. Assume that if Calcia accepts the special order,
Argone will have to buy 8,000 units of the substitute product in the United States at $75 per unit.
a. Will accepting the special order maximize after-tax operating income for Gemini Corporation as a whole?
b. Will Argone want Calcia to accept this special order? Why or why not?
c. Will Calcia want to accept this special order? Explain.
d. Suppose Gemini Corporation wants to operate in a decentralized manner. What transfer price
should Gemini set for IP-2007 so that each division acting in its own best interest takes actions with
respect to the special order that are in the best interests of Gemini Corporation as a whole?
22-34 Transfer pricing, goal congruence. The Bosh Corporation makes and sells 20,000 multisystem
music players each year. Its assembly division purchases components from other divisions of Bosh or from
external suppliers and assembles the multisystem music players. In particular, the assembly division can
purchase the CD player from the compact disc division of Bosh or from Hawei Corporation. Hawei agrees to
meet all of Bosh’s quality requirements and is currently negotiating with the assembly division to supply
20,000 CD players at a price between $44 and $52 per CD player.
A critical component of the CD player is the head mechanism that reads the disc. To ensure the quality
of its multisystem music players, Bosh requires that if Hawei wins the contract to supply CD players, it must
purchase the head mechanism from Bosh’s compact disc division for $24 each.
The compact disc division can manufacture at most 22,000 CD players annually. It also manufactures as
many additional head mechanisms as can be sold. The incremental cost of manufacturing the head mechanism is $18 per unit. The incremental cost of manufacturing a CD player (including the cost of the head mechanism) is $30 per unit, and any number of CD players can be sold for $45 each in the external market.
Required 1. What are the incremental costs minus revenues from sale to external buyers for the company as a
whole if the compact disc division transfers 20,000 CD players to the assembly division and sells the
remaining 2,000 CD players on the external market?
2. What are the incremental costs minus revenues from sales to external buyers for the company as a
whole if the compact disc division sells 22,000 CD players on the external market and the assembly division accepts Hawei’s offer at (a) $44 per CD player or (b) $52 per CD player?
3. What is the minimum transfer price per CD player at which the compact disc division would be willing
to transfer 20,000 CD players to the assembly division?
4. Suppose that the transfer price is set to the minimum computed in requirement 3 plus $2, and the division managers at Bosh are free to make their own profit-maximizing sourcing and selling decisions.
Now, Hawei offers 20,000 CD players for $52 each.
a. What decisions will the managers of the compact disc division and assembly division make?
b. Are these decisions optimal for Bosh as a whole?
c. Based on this exercise, at what price would you recommend the transfer price be set?
22-35 Transfer pricing, goal congruence, ethics. Jeremiah Industries manufactures high-grade aluminum luggage made from recycled metal. The company operates two divisions: metal recycling and luggage fabrication. Each division operates as a decentralized entity. The metal recycling division is free to sell
sheet aluminum to outside buyers, and the luggage fabrication division is free to purchase recycled sheet
aluminum from other sources. Currently, however, the recycling division sells all of its output to the fabrication division, and the fabrication division does not purchase materials from any outside suppliers.
Aluminum is transferred from the recycling division to the fabrication division at 110% of full cost. The
recycling division purchases recyclable aluminum for $0.50 per pound. The division’s other variable costs
equal $2.80 per pound, and fixed costs at a monthly production level of 50,000 pounds are $1.50 per pound.
ASSIGNMENT MATERIAL 805
During the most recent month, 50,000 pounds of aluminum were transferred between the two divisions. The
recycling division’s capacity is 70,000 pounds.
Due to increased demand, the fabrication division expects to use 60,000 pounds of aluminum next
month. Metalife Corporation has offered to sell 10,000 pounds of recycled aluminum next month to the fabrication division for $5.00 per pound.
Due to the high skill level necessary for the craftsmen, the semiconductor division’s capacity is set at
45,000 hours per year.
Maximum demand for the Super-chip is 15,000 units annually, at a price of $80 per chip. There is
unlimited demand for the Okay-chip at $26 per chip.
The process-control division produces only one product, a process-control unit, with the following
Direct materials (circuit board): $70
Direct manufacturing labor (3 hours $15): $45
The current market price for the control unit is $132 per unit.
A joint research project has just revealed that a single Super-chip could be substituted for the circuit
board currently used to make the process-control unit. Direct labor cost of the process-control unit would
be unchanged. The improved process-control unit could be sold for $145.
1. Calculate the transfer price per pound of recycled aluminum. Assuming that each division is consid- Required
ered a profit center, would the fabrication manager choose to purchase 10,000 pounds next month
2. Is the purchase in the best interest of Jeremiah Industries? Show your calculations. What is the cause
of this goal incongruence?
3. The fabrication division manager suggests that $5.00 is now the market price for recycled sheet aluminum, and that this should be the new transfer price. Jeremiah’s corporate management tends to
agree. The metal recycling manager is suspicious. Metalife’s prices have always been considerably
higher than $5.00 per pound. Why the sudden price cut? After further investigation by the recycling
division manager, it is revealed that the $5.00 per pound price was a one-time-only offer made to the
fabrication division due to excess inventory at Metalife. Future orders would be priced at $5.50 per
pound. Comment on the validity of the $5.00 per pound market price and the ethics of the fabrication
manager. Would changing the transfer price to $5.00 matter to Jeremiah Industries?
Collaborative Learning Problem
22-36 Transfer pricing, utilization of capacity. (J. Patell, adapted) The California Instrument Company
(CIC) consists of the semiconductor division and the process-control division, each of which operates as an
independent profit center. The semiconductor division employs craftsmen who produce two different electronic components: the new high-performance Super-chip and an older product called Okay-chip. These
two products have the following cost characteristics:
Direct materials $ 5 $ 2
Direct manufacturing labor, 3 hours $20; 1 hour $20 * * 60 20
1. Calculate the contribution margin per direct-labor hour of selling Super-chip and Okay-chip. If no Required
transfers of Super-chip are made to the process-control division, how many Super-chips and
Okay-chips should the semiconductor division manufacture and sell? What would be the division’s
annual contribution margin? Show your computations.
2. The process-control division expects to sell 5,000 process-control units this year. From the viewpoint of
California Instruments as a whole, should 5,000 Super-chips be transferred to the process-control division to replace circuit boards? Show your computations.
3. What transfer price, or range of prices, would ensure goal congruence among the division managers?
Show your calculations.
4. If labor capacity in the semiconductor division were 60,000 hours instead of 45,000, would your answer
to requirement 3 differ? Show your calculations.
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