TRUE-FALSE STATEMENTS

1. 2. 3. . !. #. %. '. (. 1). 11. 12. 13. 1 . 1!. 1#. 1%. 1'. 1(. 2). 21. 22. 23. 2 . 2!. In most cases, a company sets the price instead of it being set by the competitive market. In a competitive market, a company is forced to act as a price taker and must emphasize minimizing and controlling costs. The difference between the target price and the desired profit is the target cost of the product. In a competitive environment, the company must set a target cost and a target selling price. The cost"plus pricing approach establishes a cost base and adds a markup to this base to determine a target selling price. The cost"plus pricing model gives consideration to the demand side$whether customers will pay the target selling price. &ales volume plays a large role in determining per unit costs in the cost"plus pricing approach. In time"and"material pricing, the material charge is based on the cost of direct materials used and a material loading charge for related overhead costs. The first step for time"and"material pricing is to calculate the material loading charge. The material loading charge is e*pressed as a percentage of the total estimated cost of materials for the year. +ivisions within vertically integrated companies normally sell goods only to other divisions within the same company. ,sing the negotiated transfer pricing approach, a minimum transfer price is established by the selling division. There are two approaches for determining a transfer price- cost"based and market"based. If a cost"based transfer price is used, the transfer price must be based on variable cost. . problem with a cost"based transfer price is that it does not provide ade/uate incentive for the selling division to control costs. In the formula for a minimum transfer price, opportunity cost is the contribution margin of goods sold e*ternally. The market"based transfer price approach produces a higher total contribution margin to the company than the cost"based approach. . negotiated transfer price should be used when an outside market for the goods does not e*ist. The number of transfers between divisions that are located in different countries has decreased as companies rely more on outsourcing. +ifferences in ta* rates between countries can complicate the determination of the appropriate transfer price. The absorption"cost approach is consistent with generally accepted accounting principles because it defines the cost base as the manufacturing cost. The first step in the absorption"cost approach is to compute the markup percentage used in setting the target selling price. 0ecause absorption cost data already e*ists in general ledger accounts, it is cost effective to use it for pricing. The markup percentage in the variable"cost approach is computed by dividing the desired 12I3unit plus fi*ed costs3unit by the variable costs3unit. ,nder the variable"cost approach, the cost base consists of all of the variable costs associated with a product e*cept variable selling and administrative costs.

MULTIPLE CHOICE QUESTIONS

2#. 4actors that can affect pricing decisions include all of the following except a. cost considerations. b. environment. c. pricing ob5ectives. d. all of these are factors. In most cases, prices are set by the a. customers. c. largest competitor. b. competitive market. d. selling company.

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. company must price its product to cover its costs and earn a reasonable profit in a. all cases. b. its early years. c. the long run. d. the short run.

` 2(. 6rices are set by the competitive market when a. the product is specially made for a customer. b. there are no other producers capable of manufacturing a similar item. c. a company can effectively differentiate its product from others. d. a product is not easily distinguished from competing products. .ll of the following are correct statements about the target price except it a. is the price the company believes would place it in the optimal position for its target audience. b. is used to determine a product7s target cost. c. is determined after the company has identified its market and does market research. d. is determined after the company sets its desired profit amount. 8ompanies that sell products whose prices are set by market forces are called a. price givers. b. price leaders. c. price takers. d. price setters. In which of the following situations would a company not set the prices of its products9 a. :hen the product is not easily differentiated from competing products b. :hen the product is specially made for a customer c. :hen there are few or no other producers capable of making a similar product d. :hen the product can be effectively differentiated from others The calculation to determine target cost is a. variable manufacturing costs ; fi*ed manufacturing costs. b. sales price < =variable manufacturing costs ; fi*ed manufacturing costs>. c. variable manufacturing costs ; selling and administrative variable costs. d. sales price < desired profit. Target cost is comprised of a. variable and fi*ed manufacturing costs only. b. variable manufacturing and selling and administrative costs only. c. total manufacturing and selling and administrative costs. d. fi*ed manufacturing and selling and administrative costs only. . company that is a price taker would most likely use which of the following methods9 a. Time"and"material pricing b. Target costing c. 8ost plus pricing, contribution approach d. 8ost plus pricing, absorption approach 0ond 8o. is using the target cost approach on a new product. Information gathered so far reveals?*pected annual sales +esired profit per unit Target cost :hat is the target selling price per unit9 a. 6).2' b. 6).!) 3%. #)),))) units 6).2! 61#',))) c. 6).2! d. 6).!3

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:ell :ater Inc. wants to produce and sell a new flavored water. In order to penetrate the market, the product will have to sell at 62.)) per 12 oz. bottle. The following data has been collected.nnual sales 6ro5ected selling and administrative costs +esired profit The target cost per bottle is a. 6).2 . b. 6). ). c. 6).1#. !),))) bottles 6',))) 6'),))) d. 6).#).

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@arry 8able Inc. plans to introduce a new product and is using the target cost approach. 6ro5ected sales revenue is 6'1),))) =6 .!) per unit> and target costs are 6% ',')). :hat is the desired profit per unit9 a. 6).3 b. 62.)' c. 6 .1# d. Aone of the above

B 3(. :asson :idget 8ompany is contemplating the production and sale of a new widget. 6ro5ected sales are 61'%,!)) =or %!,))) units> and desired profit is 622,!)). :hat is the target cost per unit9 a. 62.!) b. 62.2) c. 62.') d. 63.)) 0oomer 0oombo* Inc. wants to produce and sell a new lightweight radio. +esired profit per unit is 62.3). The e*pected unit sales price is 62%.!) based on 1),))) units. :hat is the total target cost9 a. 62!2,))) b. 62%!,))) c. 623,))) d. 62(',))) In cost"plus pricing, the markup consists of a. manufacturing costs. c. selling and administrative costs. b. desired 12I. d. total cost and desired 12I.

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The desired 12I per unit is calculated by a. multiplying the 12I times the investment and dividing by the estimated volume. b. multiplying the unit selling price by the 12I. c. dividing the total cost by the estimated volume and multiplying by the 12I. d. dividing the 12I by the estimated volume and subtracting the result from the unit cost. 0ellingham &uit 8o. has received a shipment of suits that cost 62!) each. If the company uses cost"plus pricing and applies a markup percentage of #)C, what is the sales price per suit9 a. 6 1% b. 6 )) c. 63!) d. 6#2!

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,se the following information for /uestions < %. 8ustom &hoes 8o. has gathered the following information concerning one model of shoeDariable manufacturing costs Dariable selling and administrative costs 4i*ed manufacturing costs 4i*ed selling and administrative costs Investment 12I 6lanned production and sales . !. #. %. :hat is the total cost per pair of shoes9 a. 6!) b. 6'! 6!),))) 62!,))) 62)),))) 61!),))) 62,12!,))) 3)C !,))) pairs c. 621) d. 612) d. 6212.!) d. 61(%.!) d. 1'2C

:hat is the desired 12I per pair of shoes9 a. 6'!.)) b. 621).)) c. 612%.!) :hat is the target selling price per pair of shoes9 a. 61%%.!) b. 6212.!) c. 61 2.!) :hat is the markup percentage9 a. 1!)C b. 2!!C c. '!)C

,se the following information for /uestions ' and (. @ock Inc. has collected the following data concerning one of its products,nit sales price Total sales ,nit cost Total investment '. (. The 12I percentage is a. 2)C. b. 3)C. The markup percentage is a. 2#.)(C. b. 2).#(C. 61 ! 1),))) units 611! 61,2)),))) c. 3!C. c. 2!C. d. 2!C. d. 22.!(C.

` !). . company using cost"plus pricing has an 12I of 2 C, total sales of 12,))) units and a desired 12I per unit of 63). :hat was the amount of investment9 a. 6'#, )) b. 61,!)),))) c. 62%3,#)) d. 6 %3,#'!

,se the following information for /uestions !1<!3. 0rislin 6roducts has a new product going on the market ne*t year. The following data are pro5ections for production and salesDariable costs 4i*ed costs 12I Investment &ales !1. !2. !3. :hat is the target selling price per unit9 a. 6 .!! b. 63.!) :hat is the markup percentage9 a. ' C b. 1!C 62!),))) 6 !),))) 1!C 61, )),))) 2)),))) units c. 62.3) c. )C d. 63.3) d. 3)C

:hat would the markup percentage be if only 1!),))) units were sold and 0rislin still wanted to earn the desired 12I9 a. 2 .%1C b. ).)C c. 2#.2!C d. 32.( C :hen using cost"plus pricing, which amount per unit does not change when the e*pected volume differs from the budgeted volume9 a. Dariable cost b. 4i*ed cost c. +esired 12I d. Target selling price :hy does the unit selling price increase when e*pected volume is lower than budgeted volume9 a. Dariable costs and fi*ed costs have to be spread over fewer units. b. 4i*ed costs and desired 12I have to be spread over fewer units. c. Dariable costs and desired 12I have to be spread over fewer units. d. 4i*ed costs only have to be spread over fewer units. In cost"plus pricing, the target selling price is computed as a. variable cost per unit ; desired 12I per unit. b. fi*ed cost per unit ; desired 12I per unit. c. total unit cost ; desired 12I per unit. d. variable cost per unit ; fi*ed manufacturing cost per unit ; desired 12I per unit. In cost"plus pricing, the markup percentage is computed by dividing the desired 12I per unit by the a. fi*ed cost per unit. b. total cost per unit. c. total manufacturing cost per unit. d. variable cost per unit. The cost"plus pricing approach7s ma5or advantage is a. it considers customer demand. b. that sales volume has no effect on per unit costs. c. it is simple to compute. d. it can be used to determine a productEs target cost. The following per unit information is available for a new product of 1ed 1ibbon 8ompany+esired 12I 4i*ed cost Dariable cost Total cost &elling price 6 !) ') 12) 2)) 2!) d. #)C.

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1ed 1ibbon 8ompany7s markup percentage would be a. 2)C. b. 2!C. c. )C.

B #). 0ryson 8ompany has 5ust developed a new product. The following data is available for this product+esired 12I per unit 4i*ed cost per unit Dariable cost per unit Total cost per unit 6 2 ) #) 1)) c. 6' . d. 6# .

The target selling price for this product is a. 612 . b. 61)). #1.

.ll of the following are correct statements about the cost"plus pricing approach except that it a. is simple to compute. b. considers customer demand. c. includes only variable costs in the cost base. d. will only work when the company sells the /uantity it budgeted. In the cost"plus pricing approach, the desired 12I per unit is computed by multiplying the 12I percentage by a. fi*ed costs. b. total assets. c. total costs. d. variable costs.

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,se the following information for /uestions #3<# . 1ed Frass 8ompany produces high definition television sets. The following information is available for this product4i*ed cost per unit Dariable cost per unit Total cost per unit +esired 12I per unit #3. # . #!. 61!) !) #)) 1') d. 3)C. d. 6%').

1ed Frass 8ompany7s markup percentage would be a. 12)C. b. #)C. c. )C. The target selling price for this television is a. 633). b. 6#)). c. 6#3).

In time"and"material pricing, a material loading charge covers all of the following except a. purchasing costs. b. related overhead. c. desired profit margin. d. .ll of these are covered. The first step for time"and"material pricing is to calculate the a. charge for obtaining materials. b. charge for holding materials. c. labor charge per hour. d. charges for a particular 5ob. The labor charge per hour in time"and"material pricing includes all of the following except a. an allowance for a desired profit. b. charges for labor loading. c. selling and administrative costs. d. overhead costs. The last step in determining the material loading charge percentage is to a. estimate annual costs for purchasing, receiving, and storing materials. b. estimate the total cost of parts and materials. c. divide material charges by the total estimated costs of parts and materials. d. add a desired profit margin on the materials themselves. In time"and"material pricing, the charge for a particular 5ob is the sum of the labor charge and the a. materials charge. b. material loading charge. c. materials charge ; desired profit. d. materials charge ; the material loading charge.

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,se the following information for /uestions %)"%2. The following data is available for :heels GA &pokes 1epair &hop for 2))'-

` 1epair techniciansE wages 4ringe benefits 2verhead Total 62%),))) #),))) !,))) 63%!,)))

The desired profit margin is H3) per labor hour. The material loading charge is )C of invoice cost. It is estimated that !,))) labor hours will be worked in 2))'. %). %1. :heels GA &pokesE labor charge in 2))' would be a. 6%!. b. 6' . c. 6(#. d. 61)!.

In Ianuary 2))', :heels GA &pokes repairs a bicycle that uses parts of 612). Its material loading charge on this repair would be a. 6 '. b. 6%2. c. 612). d. 61#'. In Jarch 2))', :heels GA &pokes repairs a bicycle that takes two hours to repair and uses parts of H1'). The bill for this repair would be a. 63(). b. 6 2). c. 6 . d. 6 #2. :hich of the following organizations would most likely not use time"and"material pricing9 a. .utomobile repair company b. ?ngineering firm c. 8ustom furniture manufacturer d. 6ublic accounting firm

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,se the following information for /uestions % <%#. 8arlos 8onsulting Inc. provides financial consulting and has collected the following data for the ne*t yearEs budgeted activity for a lead consultant. 8onsultantEs wages 4ringe benefits 1elated overhead &upply clerkEs wages 4ringe benefits 1elated overhead 6rofit margin per hour 6rofit margin on materials Total estimated consulting hours Total estimated supply costs % . %!. %#. The labor rate per hour is a. 632.!). b. 62#.)). The material loading charge is a. 2!C. b. )C. 6(),))) 622,!)) 61%,!)) 61',))) 6 ,))) 62),))) 61) 1!C !,))) 61#',))) c. 631.!). c. !!C. d. 63#.)). d. 1!C.

. consulting 5ob takes 2) hours of consulting time and 61') of supplies. The clientEs bill would be a. 6(%2. b. 6%%2. c. 6( !. d. 6% !.

,se the following information for /uestions %%<%'. @onely Fuy 1epair &ervice recently performed repair services for a customer that totaled 6 )). &omehow the bill was lost and the company accountant was trying to recreate the bill from memory. This is what was rememberedTotal bill @abor profit margin Jaterials profit margin Total labor charges 8ost of materials used Total hourly cost %%. %'. 6 )) 61) 2)C 62#) 61)) 622.!) c. 3!C d. )C

:hat was the material loading charge9 a. 2)C b. 2!C Kow many hours were billed on the 5ob9

B a. 13.) %(. b. 12.3 c. 11.! d. '.)

@awrence @egal &ervices recently billed a customer 6%!). @abor hours were # and the cost of the materials used was 61!). If the companyEs hourly labor rate was 6%!, what material loading charge was used9 a. )C b. !)C c. 1))C d. ')C +udly +rafting &ervices uses a !C material loading charge and a labor rate of 6 ) per hour. Kow much will be charged on a 5ob that re/uires 3.! hours of work and 6') of materials9 a. 62!# b. 622) c. 61%# d. 62## The time component under time"and"material pricing includes a a. loading charge. b. charge for receiving, handling, and storing materials. c. portion of the materials clerkEs wages. d. profit margin. ,sing time"and"material pricing involves how many steps9 a. b. 3 c. 2 d. 1

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The last step in calculating the hourly rate to be charged in time"and"material pricing is to a. estimate the total labor costs plus fringe benefits. b. estimate the total labor hours. c. add a profit margin. d. add a charge for overhead costs.

,se the following information for /uestions ' <'#. Iaycee .uto 1epair has the following budgeted costs for the ne*t year&hop employeesE wages and benefits 6arts managerEs salary and benefits 2ffice employeeEs salary and benefits 2ther overhead Invoice cost of parts and materials Total budgeted costs ' . Time 8harges 612),))) " 3),))) 1!,))) " 61#!,))) Jaterial 8harges 6 " !,))) 1!,))) ),))) )),))) 6!)),)))

The labor rate to be used ne*t year assuming %,!)) hours of repair time and a profit margin of 61! per labor hour is a. 622. b. 631. c. 633. d. 63%. The material loading charge to be used ne*t year assuming a )C markup on material cost is a. #!C. b. )C. c. ')C. d. 2)C. Iaycee estimates that the repairs to a 8adillac ?scalade damaged in a rollover will take hours of labor and 63,!)) in parts and materials. The total cost of the repairs is a. 6!,1#!. b. 6%, ). c. 6!,3#!. d. 6#,3(). !

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The price used to record a sale between divisions within the same vertically integrated company is called the a. sales price. b. integrated price. c. transfer price. d. bargain price. The overall ob5ective in the determination of a transfer price is to a. ma*imize the return of the selling division. b. minimize the cost to the purchasing division. c. minimize the return of the selling division. d. ma*imize the return to the whole company. :hich two methods are used most often when establishing a transfer price9 a. Aegotiated transfer pricing and cost"based transfer pricing b. 8ost"based transfer pricing and market"based transfer pricing c. Aegotiated transfer pricing and market"based transfer pricing

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` d. 8ost"based transfer pricing and standard"based pricing ,se the following information for /uestions () and (1. The &elling +ivisionEs unit sales price is 61! and its unit variable cost is 6(. Its capacity is 1),))) units. 4i*ed costs per unit are 6 . 8urrent outside sales are ',))) units. (). :hat is the &elling +ivisionEs opportunity cost per unit from selling 2,))) units to the 6urchasing +ivision9 a. 6# b. 61! c. 62 d. 6) :hat is the &elling +ivisionEs opportunity cost per unit from selling 3,))) units to the 6urchasing +ivision9 a. 6# b. 61! c. 62 d. 6) In the minimum transfer price formula, variable cost is defined as the variable cost of a. all units sold, both internally and e*ternally. b. units sold e*ternally. c. units not sold. d. units sold internally. ,nder the negotiated transfer pricing approach, the minimum transfer price is established by the a. purchasing division. b. corporate head/uarters management. c. selling division. d. corporate negotiator. ,nder the negotiated transfer pricing approach, the ma*imum transfer price is established by the a. purchasing division. b. corporate head/uarters management. c. selling division. d. corporate negotiator. .ssume the Thread +ivision has e*cess capacity. The Farment +ivision wants the Thread +ivision to furnish them additional spools of thread that could be made using the e*cess capacity. In a negotiated transfer price, the Thread +ivision should accept as a minimum any transfer price that e*ceeds the a. total cost of producing spools for outside sales. b. variable costs of producing the additional spools for the Farment +ivision. c. contribution margin and outside spool sales. d. foregone contribution margin on outside spool sales. The most common method used to establish transfer prices is a. negotiated transfer pricing. b. market"based transfer pricing. c. cost"plus transfer pricing. d. cost"based transfer pricing. :hen a sale occurs between divisions of the same company, which transfer pricing approach may lead to the buying division overpricing its product9 a. 8ost based transfer pricing b. Jarket"based transfer pricing c. Aegotiated transfer pricing d. 8ost"plus transfer pricing

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,se the following information for /uestions ('<1)). The @umber +ivision of 6aul 0unyon Komes Inc. produces and sells lumber that can be sold to outside customers or within the company to the 8onstruction +ivision. The following data have been gathered for the coming period@umber +ivision8apacity 6rice per board foot Dariable production cost per bd. ft. Dariable selling cost per bd. ft. 8onstruction +ivision0oard feet needed 2)),))) board feet H2.)) H1.)) H). ) #),)))

B 2utside price paid per bd. ft. H1.#)

If the @umber +ivision sells to the 8onstruction +ivision, H).3) per board foot can be saved in shipping costs. ('. If current outside sales are 13),))) board feet, what is the minimum transfer price that the @umber +ivision could accept9 a. H1.)) b. H1.1) c. H1. ) d. H2.)) If current outside sales are 1!),))) board feet, what is the minimum transfer price that the @umber +ivision could accept9 a. H1.#) b. H1.3) c. H1.1) d. H1.%) If the @umber +ivision has sufficient e*cess capacity to fulfill the 8onstruction +ivisionEs needs, what will be the effect on the companyEs overall contribution margin9 a. +ecrease by H2 ,))) b. +ecrease by H1',))) c. Increase by H3),))) d. Increase by H2%,)))

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,se the following information for /uestions 1)1 and 1)2. Tuttle Jotorcycles Inc. manufactures and sells high"priced motorcycles. The ?ngine +ivision produces and sells engines to other motorcycle companies and internally to the 6roduction +ivision. It has been decided that the ?ngine +ivision will sell 2),))) units to the 6roduction +ivision at H%)) a unit. The ?ngine +ivision, currently operating at capacity, has a unit sales price of H1,%)) and unit variable costs and fi*ed costs of H%)) and H!)), respectively. The 6roduction +ivision is currently paying H1,#)) per unit to an outside supplier. H#) per unit can be saved on internal sales from reduced selling e*penses. 1)1. :hat is the minimum transfer price that the ?ngine +ivision should accept9 a. H1,# ) b. H1,%)) c. H1,#)) d. H1,))) :hat is the increase3decrease in overall company profits if this transfer takes place9 a. +ecrease 6')),))) b. Increase 61,#'),))) c. +ecrease 62,))),))) d. Increase 61',))),)))

1)2.

,se the following information for /uestions 1)3 and 1) . The 8an +ivision of 4ruit 6roducts Inc. manufactures and sells tin cans e*ternally for 6).!) per can. Its unit variable costs and unit fi*ed costs are 6).2) and 6).)%, respectively. The 6ackaging +ivision wants to purchase !),))) cans at 6).2% a can. &elling internally will save 6).)2 a can. 1)3. .ssuming the 8an +ivision has sufficient capacity, what is the minimum transfer price it should accept9 a. 6).2) b. 6).2% c. 6).1' d. 6).2! .ssuming the 8an +ivision is already operating at full capacity, what is the minimum transfer price it should accept9 a. 6). ' b. 6).!! c. 6).2 d. 6).2'

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,se the following information for /uestions 1)! and 1)#. The +airy +ivision of 4amous 4oods, Inc. produces and sells milk to outside customers. The operation has the capacity to produce 2!),))) gallons of milk a year. @ast yearEs operating results were as follows-

` &ales =2)),)))> gallons Dariable costs 8ontribution margin 4i*ed costs Aet Income 1)!. 6!)),))) 312,))) 1'',))) 1)),))) 6 '',)))

.ssume the Logurt +ivision wants to purchase 3),))) gallons of milk from the +airy +ivision. The minimum price that will increase the +airy +ivisionEs profit is a. 62.!) per gallon. b. 6).( per gallon. c. 61.!# per gallon d. 6). per gallon. .ssume the +airy +ivision is operating at capacity. If the Logurt +ivision wants to purchase 3),))) gallons of milk from the +airy +ivision, what is the minimum price that will allow the +airy +ivision to maintain its current net income9 a. 62.!) per gallon b. 6).( per gallon c. 61.!# per gallon d. 6). per gallon Aegotiated transfer pricing is not always used because of each of the following reasons except that a. market price information is sometimes not easily obtainable. b. a lack of trust between the negotiating divisions may lead to a breakdown in the negotiations. c. negotiations often lead to different pricing strategies from division to division. d. opportunity cost is sometimes not determinable. .ll of the following are approaches for determining a transfer price except the a. cost"based approach. b. market"based approach. c. negotiated approach. d. time"and"material approach. :hen a cost"based transfer price is used, the transfer price may be based on any of the following except a. fi*ed cost. b. full cost. c. variable cost. d. .ll of these may be used. .ll of the following are correct statements about the cost"based transfer price approach except that it a. can understate the actual contribution to profit by the selling division. b. can reduce a division manager7s control over the division7s performance. c. bases the transfer price on standard cost instead of actual cost. d. provides incentive for the selling division to control costs. The general formula for the minimum transfer price is- minimum transfer price e/uals a. fi*ed cost ; opportunity cost. b. e*ternal purchase price. c. total cost ; opportunity cost. d. variable cost ; opportunity cost. Dariable costs of units sold internally will always be a. lower than the variable costs of units sold e*ternally. b. higher than the variable costs of units sold e*ternally. c. the same as the variable costs of units sold e*ternally. d. Dariable costs of units sold internally may be either higher or lower than for units sold e*ternally. In the formula for the minimum transfer price, opportunity cost is the MMMMMMMMMM of the goods sold e*ternally. a. variable cost b. total cost c. selling price d. contribution margin The transfer price approach that conceptually should work the best is the a. cost"based approach. b. market"based approach. c. negotiated price approach. d. time"and"material pricing approach.

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B 11!. The transfer price approach that is often considered the best approach because it generally provides the proper economic incentives is the a. cost"based approach. b. market"based approach. c. negotiated price approach. d. time"and"material pricing approach. .ll of the following are correct statements about the market"based approach except that it a. assumes that the transfer price should be based on the most ob5ective inputs possible. b. provides a fairer allocation of the company7s contribution margin to each division. c. produces a higher company contribution margin than the cost"based approach. d. ensures that each division manager is properly motivated and rewarded. The negotiated transfer price approach should be used when a. the selling division has available capacity and is willing to accept less than the market price. b. an outside market for the goods does not e*ist. c. no market price is available. d. any of these situations e*ist. .ssuming the selling division has available capacity, a negotiated transfer price should be within the range of a. fi*ed cost per unit and the e*ternal purchase price. b. total cost per unit and the e*ternal purchase price. c. variable cost per unit and the e*ternal purchase price. d. variable cost per unit and the opportunity cost. The transfer price approach that will result in the largest contribution margin to the buying division is the a. cost"based approach. b. market"based approach. c. negotiated price approach. d. time"and"material pricing approach. The ma*imum transfer price from the buying division7s standpoint is the a. total cost ; opportunity cost. b. variable cost ; opportunity cost. c. e*ternal purchase price. d. e*ternal purchase price ; opportunity cost.

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,se the following information for /uestions 121 and 122. The :ood +ivision of 4ir 6roducts, Inc. manufactures rubber moldings and sells them e*ternally for H11). Its variable cost is 6!) per unit, and its fi*ed cost per unit is 61 . 4ir7s president wants the :ood +ivision to transfer !,))) units to another company division at a price of 6# . 121. .ssuming the :ood +ivision has available capacity of !,))) units, the minimum transfer price it should accept is a. 61 . b. 6!). c. 6# . d. 611). .ssuming the :ood +ivision does not have any available capacity, the minimum transfer price it should accept is a. 61 . b. 6!). c. 6# . d. 611).

122.

,se the following information for /uestions 123 and 12 . Janagement of the 8atering 8ompany would like the 4ood +ivision to transfer 1),))) cans of its final product to the 1estaurant +ivision for 6'). The 4ood +ivision sells the product to customers for 61 ) per unit. The 4ood +ivisionEs variable cost per unit is 6%) and its fi*ed cost per unit is 62). 123. If the 4ood +ivision is currently operating at full capacity, what is the minimum transfer price the 4ood +ivision should accept9 a. 62) b. 6%) c. 6() d. 61 )

` 12 . If the 4ood +ivision has 1),))) units available capacity, what is the minimum transfer price the 4ood +ivision should accept9 a. 62) b. 6%) c. 6() d. 61 ) .ll of the following are correct statements about transfers between divisions located in countries with different ta* rates except that a. differences in ta* rates across countries complicate the determination of the appro"priate transfer price. b. many companies prefer to report more income in countries with low ta* rates. c. companies must pay income ta* in the country where income is generated. d. a decreasing number of transfers are between divisions located in different countries. Transfers between divisions located in countries with different ta* rates a. simplify the determination of the appropriate transfer price. b. are decreasing in number as more companies NlocalizeN operations. c. encourage companies to report more income in countries with low ta* rates. d. all of these are correct. :hich of the following is consistent with generally accepted accounting principles9 a. .bsorption"cost approach b. 8ontribution approach c. Dariable"cost approach d. 0oth absorption"cost and contribution approach ,nder the absorption"cost approach, all of the following are included in the cost base except a. direct materials. b. fi*ed manufacturing overhead. c. selling and administrative costs. d. variable manufacturing overhead. The first step in the absorption"cost approach is to compute the a. desired 12I per unit. b. markup percentage. c. target selling price. d. unit manufacturing cost. The markup percentage in the absorption"cost approach is computed by dividing the sum of the desired 12I per unit and a. fi*ed costs per unit by manufacturing cost per unit. b. fi*ed costs per unit by variable costs per unit. c. selling and administrative e*penses per unit by manufacturing cost per unit. d. selling and administrative e*penses per unit by variable costs per unit. In the absorption"cost approach, the markup percentage covers the a. desired 12I only. b. desired 12I and selling and administrative e*penses. c. desired 12I and fi*ed costs. d. selling and administrative e*penses only. The absorption"cost approach is used by most companies for all of the following reasons except that a. absorption cost information is readily provided by a company7s cost accounting system. b. absorption cost provides the most defensible bases for 5ustifying prices to interested parties. c. basing prices on only variable costs could encourage managers to set too low a price to boost sales. d. this approach is more consistent with cost"volume"profit analysis. ,nder the variable"cost approach, the cost base includes all of the following except a. variable selling and administrative costs. b. variable manufacturing costs. c. total fi*ed costs. d. .ll of the above are included. In the variable"cost approach, the markup percentage covers the a. desired 12I only. b. desired 12I and fi*ed costs. c. desired 12I and selling and administrative e*penses. d. fi*ed costs only.

12!.

12#.

12%.

12'.

12(.

13).

131.

132.

133.

13 .

B 13!. The markup percentage denominator in the variable"cost approach is the a. desired 12I per unit. b. fi*ed costs per unit. c. manufacturing cost per unit. d. variable costs per unit. The reasons for using the variable"cost approach include all of the following except this approach a. avoids arbitrary allocation of common fi*ed costs to individual product lines. b. is more consistent with cost"volume"profit analysis. c. provides the most defensible bases for 5ustifying prices to all interested parties. d. provides the type of data managers need for pricing special orders. Jaggie 8o. has variable manufacturing costs per unit of 6 ), and fi*ed manufacturing cost per unit is 63). Dariable selling and administrative costs per unit are 6', while fi*ed selling and administrative costs per unit are 612. Jaggie desires an 12I of 61! per unit. If Jaggie 8o. uses the absorption"cost approach, what is its markup percentage9 a. '.33C b. !)C c. 1#.#%C d. 2!C Jaggie 8o. has variable manufacturing costs per unit of H ), and fi*ed manufacturing cost per unit is 62). Dariable selling and administrative costs per unit are 61), while fi*ed selling and administrative costs per unit are 6 . Jaggie desires an 12I of 61# per unit. If Jaggie 8o. uses the variable"cost approach, what is its markup percentage9 a. !)C b. ')C c.3)C d.1))C

13#.

13%.

13'.

,se the following information for /uestions 13(<1 . 6apillon 8o. has determined the following per unit amounts+irect materials +irect labor +esired 12I 4i*ed overhead 13(. 1 ). 1 1. 1 2. 1 3. 1 . 61) 12 11 1! 4i*ed selling and administrative 62) Dariable overhead ' Dariable selling and administrative !

The cost base using the absorption"cost approach is a. 63). b. 63!. c. 6#!. The markup percentage using the absorption"cost approach is a. ')C. b. 1)2C. c. 131C. The target selling price using the absorption"cost approach is a. 611%. b. 6'1. c. 6! . The cost base using the variable"cost approach is a. 63). b. 63!. c. 6#!. The markup percentage using the variable"cost approach is a. ')C. b. 1)2C. c. 131C. The target selling price using the variable"cost approach is a. 61)3.(!. b. 6#(.3). c. 6%).%). .lfredo 8o. has collected the following per unit data+irect labor +irect materials Dariable overhead 61! 1) '

d. 6 !. d. ()C. d. 6123.!). d. 6 !. d. ()C. d. 6').'!.

1 !.

Dariable selling and admin. 4i*ed overhead 4i*ed selling and admin.

6 # 2) 1

The markup percentage is 12)C. :hat is the target selling price under the variable"cost approach9 a. 6! .2) b. 6 #.') c. 63(.#) d. 6'%.#)