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Negotiated prices are transfer prices a

Select one:
a.
used when supplying and buying divisions independently agree on a price.
b.
agreed to by division management and employees.
c.
negotiated with external customers.
d.
determined between a division and corporate headquarters.

In the Bombadier Company, Division A has a product that can be sold 58

either to outside customers or to Division B. Information about these
divisions is given below:

Case 1 Case 2
Division A:
Capacity in units 100,000 100,000
Number of units sold externally 100,000 60,000
Market selling price $90 $75
Variable costs per unit 73 58
Fixed costs per unit based on capacity 10 10

Division B:
Number of units needed for production 40,000 40,000
Purchase price per unit from external
$86 $74
supplier

The company uses the opportunity cost approach to transfer pricing.

What is the minimum transfer price in Case 2?

Select one:
a.
$74
b.
$58
c.
$75
d.
$68

The "floor" in transfer pricing is d

Select one:
a.
the transfer price that would leave the buying division no worse off if an input is
purchased from an internal division.
b.
none of these.
c.
the transfer price that would leave the buying division worse off if an input is
purchased from an internal division.
d.
the transfer price that would leave the selling division no worse off if the good is sold
to an internal division.

The A divisionalized company uses transfer pricing as part of its

management information system. Each manager is assessed on their
divisional profit. Division A makes a unit for $10 variable cost and $3 of
fixed cost is absorbed. Division B takes these units, incurs incremental
$8 variable cost and absorb $4. It then sells them for $21. The transfer
price is set at $12. There are no capacity constraints and all fixed costs
are unavoidable in the short run. Which of the above statements is
true?

a.
The manager of division A does not produce the units
b.
The transfer price goal congruent
c.
The manager of division B does not produce the units
d.
From the company’s perspective, production should not occur

Mar Company has two decentralized divisions, X and Y. Division X has a

always purchased certain units from Division Y at $75 per unit. Because
Division Y plans to raise the price to $100 per unit, Division X is seeking
an outside supplier of the part for the old price of $75 per unit. Division
Y's costs follow: Y’s variable costs per unit: $70. Y’s annual fixed costs:
$15,000. Y’s annual production of these units for X: 1,000 units. If
Division X buys from an outside supplier, the facilities Division Y uses to
manufacture these units would be idle. What would be the result if the
top management of Mar Company insists that Division X purchase from
Division Y at a transfer price of $100 per unit?

a.
it would be more profitable for the company than allowing X to buy from outside
suppliers at $75 per unit
b.
it would provide lower overall company net operating income than the old transfer
price of $75 per unit
c.
it would provide higher overall company net operating income than the old transfer
price of $75 per unit
d.
it would reduce the company's overall profit because Division X should buy from
outside suppliers at $75 per unit if possible

Division A of Tripper Company produces a part that it sells to other companies. 39

Sales and cost data for the part follow: Capacity in units: 60,000. Selling price per
unit: $40. Variable costs per unit: $28. Fixed costs per unit at capacity: $9.Division
B, another division of Tripper Company, would like to buy this part from Division
A. Division B is presently purchasing the part from an outside source at $38 per
unit. If Division A sells to Division B, $1 in variable costs can be avoided. Assume
that Division A is presently operating at capacity. According to the formula in the
text, what is the lowest acceptable transfer price from the viewpoint of the selling
division?

Division R and Division S are two divisions of RS Co. Division R

manufactures one product, product X. Unit production cost and market
price are as follows: - Direct materials: £7; - Direct labour: £5; - Fixed
overhead: £1; - Prevailing market price: £18. Product X is sold outside
the company in a perfectly competitive market and also to Division S. If
sold outside the company, product X incurs variable selling costs of $3
per unit which are not incurred on internal transfers. If the total demand
for product X were more than sufficient for Division R to manufacture to
capacity, at what price would the company prefer Division R to transfer
product X to Division S?

a.
£6
b.
£15
c.
£13
d.
£18

Division X makes a part that it sells to customers outside of the 75

company. Data concerning this part appear below: Selling price to
outside customers: $75. Variable cost per unit: $50. Total fixed costs:
$400,000. Capacity in units: 25,000. Division Y of the same company
would like to use the part manufactured by Division X in one of its
products. Division Y currently purchases a similar part made by an
outside company for $70 per unit and would substitute the part made by
Division X. Division Y requires 5,000 units of the part each period.
Division X has ample excess capacity to handle all of Division Y's
needs without any increase in fixed costs and without cutting into
outside sales of the part. What is the lowest acceptable transfer price
from the standpoint of the selling division?

a.
$66
b.
$75
c.
$50
d.
$16
Hydroxide Company has two divisions, the Blending Division and C
Canning Division. The Blending Division sells chemicals to the Canning Transfer
Division. price=
Direct
materials
cost per
Standard costs for the Blending Division are as follows:
gallon +
Direct
labor per
Direct materials $3.00 per gallon +
gallon Variable
Direct labor 2.40 per overhead
gallon per gallon

= $3.00 +
The Canning Division uses the following predetermined overhead rate: $2.40 +
$3.60

= $9.00
Variable overhead $3.60 per
gallon
Fixed overhead 2.40 per gallon
Total $6.00 per
gallon

What is the transfer price for the chemicals per gallon based on
standard variable cost?

Select one:
a.$5.40
b.$3.00
c.$9.00
d.$11.40

TS Ltd has 2 divisions, Division T and Division S. Division T makes a

component for sunglasses which it can sell only to Division S. It has no
other outlet for sales. Current information for the divisions is as follows:
- Incremental cost for Division T £200; - Incremental cost for Division S
£400; - Transfer price for component £220; - Final sunglasses selling
price £800; - Unit sales 100. The transfer price is based on a 10% mark
up on incremental costs. What is the amount of profit recognised by
Division S?

a.
£20,000
b.
£16,000
c.
£14,000
d.
£18,000

Which of the following statements about transfer pricing is not true? d

a.
If the selling division has spare capacity, the transfer price should be the marginal cost
of production
b.
The transfer price should match the selling division’s cost of capital to customer
c.
If the selling division has no spare capacity, the transfer price should be the marginal
cost of production, plus any lost contribution
d.
The most efficient transfer price will be the opportunity cost of the selling division

When there is an outside market for an intermediate product that is c

perfectly competitive, the most equitable method of transfer pricing is

Select one:
a.
cost plus markup pricing.
b.
production cost pricing.
c.
market price.
d.
variable cost pricing.
The transfer price that would leave the buying division no worse off if C
an input is purchased from an internal division is(are) called:

Select one:
a.
Both a and c
b.
The minimum transfer price
c.
The maximum transfer price
d.
The negotiated transfer price

The transfer price that would leave the selling division no worse off if C
the good is sold to an internal division is(are) called:

Select one:
a.
Both a and c
b.
The negotiated transfer price
c.
The minimum transfer price
d.
The maximum transfer price

Rags-to-Riches Corporation has two divisions, X and Y. Division X sells its 13.75
product to Division Y. Standard costs for Division X are as follows: Direct
materials $ 4 per unit Direct labor 2 per unit Variable overhead 5 per unit Fixed case 1
overhead 3 per unit Total $14 per unit What is the transfer price for Division X
based on standard variable cost plus a markup of 25 percent?In the
Bombadier Company, Division A has a product that can be sold either to
outside customers or to Division B. Information about these divisions is given
below:

Case 1 Case 2
 Division A:

Capacity in units 100,000 100,000

Number of units sold externally 100,000 60,000

Market selling price $90 $75

Variable costs per unit 73 58

Fixed costs per unit based on capacity 10 10

Division B:

Number of units needed for production 40,000 40,000

Purchase price per unit from external

$86 $74
supplier

The company uses the opportunity cost approach to transfer pricing. Which
case should not be transferred internally?

Select one:
a.
Case 2
b.
Case 1
c.
Neither should be transferred internally.
d.
Both should be transferred internally.

Transfer prices are the prices charged c

Tao tra
Select one: thì nó ra
A
a.
for the goods produced by one division to another division that needs these goods.
b.
when transferring goods to international divisions.
c.
for distributing goods from one warehouse to another.
d.
when delivering goods to the customer.

In the Bombadier Company, Division A has a product that can be sold

either to outside customers or to Division B. Information about these
divisions is given below:

Case 1 Case 2
Division A:
Capacity in units 100,000 100,000
Number of units sold externally 100,000 60,000
Market selling price $90 $75
Variable costs per unit 73 58
Fixed costs per unit based on capacity 10 10

Division B:
Number of units needed for production 40,000 40,000
Purchase price per unit from external
$91 $74
supplier

The company uses the opportunity cost approach to transfer pricing.

What is the maximum transfer price in Case 1?

Select one:
a.
$91
b.
$73
c.
$83
d.
$90

Rags-to-Riches Corporation has two divisions, X and Y. Division X sells its

product to Division Y. Standard costs for Division X are as follows:

Direct materials
$ 4 per unit
Direct labor
2 per unit
Variable overhead
5 per unit
Fixed overhead
3 per unit
Total
$14 per unit

What is the transfer price for Division X based on standard variable cost plus a
markup of 25 percent?
Select one:

a.
$17.50

b.
$13.75

c.
$11.00

d.
$7.50

From the options below, select the statement that best describes goal D
congruence when setting transfer prices.

a.
Allow top management to become actively involved
b.
Minimize opportunity costs
c.
Maximise profits of the buying division
d.
Establish incentives for autonomous division managers to make decisions that are in
the best interests of the company as a whole

From the options below, select the best way to calculate the transfer
price for a selling division which operates at full capacity.

a.
Marginal cost + Standard mark up
b.
Opportunity cost of lost contribution only
c.
Full cost + standard markup percentage
d.
Marginal cost + Opportunity cost of lost external contribution

Division S of Kracker Company makes a part that it sells to other

companies. Data on that part appear below: Selling price on the
intermediate market: $30. Variable costs per unit: $22. Fixed costs per
unit (based on capacity): $7. Capacity in units: 50,000. Division B,
another division of Kracker Company, presently is purchasing 10,000
units of a similar product each period from an outside supplier for $28
per unit, but would like to begin purchasing from Division S. Suppose
that Division S can sell all that it can produce to outside customers. If
Division S sells to Division B at a price of $28 per unit, the company as
a whole will be:

a.
worse off by $80,000 each period
b.
worse off by $70,000 each period
c.
better off by $20,000 each period
d.
worse off by $20,000 each period

When there is an outside market for an intermediate product that is B

perfectly competitive, the most equitable method of transfer pricing is

Select one:
a.
cost plus markup pricing.
b.
market price.
c.
variable cost pricing.
d.
production cost pricing.

The "floor" in transfer pricing isSelect one: D

a.the transfer price that would leave the buying division worse off if an input is
purchased from an internal division.
b.none of these.
c.the transfer price that would leave the buying division no worse off if an input is
purchased from an internal division.
d.the transfer price that would leave the selling division no worse off if the good is sold
to an internal division.

DR Ltd has two divisions, D and R. Division D makes a component b

which it can sell only to Division R. It has no external market. The
current information for the divisions is as follows: Incremental cost for
Division D is £150. Incremental cost for Division R is £250. Transfer
price for one component is £202.50. Selling price of the final product is
£600. The transfer price is based on a 35% mark up on incremental
costs. What is the profit per component for DR Ltd?

a.
£350
b.
£200
c.
£147.50
d.
£247.50

Thomas is the manager of Division Z in a big conglomerate Win Inc.

Division Z is operating at full capacity and can sell everything produced
either internally or externally. From the options below, select the basis
on which Thomas will fix the transfer price of Division Z.

a.
Dual pricing
b.
Market price
c.
Full cost plus a mark-up
d.
Variable costing

Division Z manufactures chemicals. It sells chemicals to the external

market at a price of $22 per litre. This provides a contribution/sales ratio
of 40%. Division X (a separate part of the same group company)
requires a regular supply of chemicals in order to manufacture their own
products.

For external sales, variable cost includes $1.20 per litre for extra courier
charges. These are not applicable to internal sales. Z has sufficient
capacity to meet all internal and external demand.

Which price range would maximise profit from the company's

perspective?

a.
$1.20-$22
b.
$22-$23.20
c.
$12-$22
d.
All are incorrect
e.
$13.20-$22

Division X makes a part that it sells to customers outside of the 50

company. Data concerning this part appear below: Selling price to
outside customers: $75. Variable cost per unit: $50. Total fixed costs:
$400,000. Capacity in units: 25,000. Division Y of the same company
would like to use the part manufactured by Division X in one of its
products. Division Y currently purchases a similar part made by an
outside company for $70 per unit and would substitute the part made by
Division X. Division Y requires 5,000 units of the part each period.
Division X has ample excess capacity to handle all of Division Y's
needs without any increase in fixed costs and without cutting into
outside sales of the part. What is the lowest acceptable transfer price
from the standpoint of the selling division?

a.
$50
b.
$16
c.
$75
d.
$66

Selling Division S of company Z Plc has surplus capacity as there is a

limit to the amount that the division can sell externally. From the options
below, select the optimum transfer price for Division S.

a.
Optimum TP = Marginal revenue
b.
Optimum TP = Marginal Cost
c.
Optimum TP = Variable Cost + Opportunity cost
d.
Optimum TP = Opportunity Cost

Negotiated prices are transfer prices a

Select one:
a.
used when supplying and buying divisions independently agree on a price.
b.
determined between a division and corporate headquarters.
c.
agreed to by division management and employees.
d.
negotiated with external customers.

Gunnison Furniture had the following historical accounting data, per hundred 84
board feet, concerning one of its products:

Finished shelving:

Direct materials $30

Direct labor 16

Variable overhead 10

Fixed overhead 12

Variable selling expenses 8

Fixed selling expenses 4

The shelving is normally transferred internally from the Cutting Division to the
Finishing Division. It also may be sold externally for $110 per hundred board feet.
The minimum profit level accepted by the company is a markup of 20 percent.

If the variable manufacturing cost transfer price method is used without a fixed
fee, Gunnison Furniture's transfer price will be

In the Bombadier Company, Division A has a product that can be sold

either to outside customers or to Division B. Information about these
divisions is given below:

Case 1 Case 2

Division A:

Capacity in units 100,000 100,000

Number of units sold externally 100,000 60,000

Market selling price $90 $75

 Variable costs per unit 73 58

Fixed costs per unit based on capacity 10 10

Division B:

Number of units needed for production 40,000 40,000

Purchase price per unit from external

$91 $74
supplier

The company uses the opportunity cost approach to transfer pricing.

What is the maximum transfer price in Case 1?

Select one:
a.
$83
b.
$73
c.
$91
d.
$90

A transfer price is the price charged by one division of a company to sai

another company.

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Division A of Tripper Company produces a part that it sells to other

companies. Sales and cost data for the part follow: Capacity in units:
60,000. Selling price per unit: $40. Variable costs per unit: $28. Fixed
costs per unit at capacity: $9.Division B, another division of Tripper
 Company, would like to buy this part from Division A. Division B is
presently purchasing the part from an outside source at $38 per unit. If
Division A sells to Division B, $1 in variable costs can be avoided.
Assume that Division A has ample idle capacity to handle all of Division
B's needs without any increase in fixed costs and without cutting into
outside sales. According to the formula in the text, what is the lowest
acceptable transfer price from the viewpoint of the selling division?

a.
$40
b.
$27
c.
$28
d.
$39

F Plc manufactures designer furniture. It has a specialised division D

which makes high end designer glass door knobs. These door knobs
have an external market and can be sold for £20 each. Division D has
spare capacity of 4,000 units. The wardrobe assembly division W uses
this door knob in making its final product (designer wardrobes). Current
information for the divisions is as follows: - Incremental cost for Division
D: £15; - Incremental cost for Division W: £65; - Number of units of
wardrobes that can be sold - 6,000 units; What is the transfer price per
unit under an opportunity cost approach?

a.
£20 for 6,000 units
b.
£35 for 6,000 units
c.
£15 for 4,000 units and then £20 for 2,000 units
d.
£15 for 6,000 units

OBTC Company has two divisions OB and TC. OB manufactures a special part for a
games console that is manufactured and sold by TC division. There is no external
market for this component. The final selling price of the games console received by
TC is $800. The variable cost of producing a console to TC division (excluding the
component) is $250. The variable cost to OB of manufacturing the component is
$150. Transfer prices will be calculated using a 35% markup on variable cost. Select
which of the following states the correct value of contribution earned by OBTC from
each tablet?

a.
$347.50
b.
$452.50
c.
$202.50
d.
$400