Question 1

Multinational firms often face conflicting pressures when developing transfer pricing policies. Tax avoidance results when:

Accepted Answer

A)  inflated transfer prices are used to reduce the profits of divisions in high tax-rate countries. 
B)  inflated transfer prices are used to reduce the profits of divisions in low tax-rate countries. 
C)  cost-based transfer prices are used instead of market transfer prices in high tax-rate countries. 
D)  cost-based transfer prices are used instead of negotiated market transfer prices in low tax-rate countries. 
A)  inflated transfer prices are used to reduce the profits of divisions in high tax-rate countries. 
B)  inflated transfer prices are used to reduce the profits of divisions in low tax-rate countries. 
C)  cost-based transfer prices are used instead of market transfer prices in high tax-rate countries. 
D)  cost-based transfer prices are used instead of negotiated market transfer prices in low tax-rate countries.

Question 2

The Raisin Division of Trail Mix Foods, Incorporated had the following operating results last year:
$$\begin{array} { l r } 
\text { Sales } ( 150,000 \text { pounds of raisins) } & \$ 60,000 \
\text { Variable expenses } & 37,500 \
\text { Contribution margin } & 22,500 \
\text { Fixed expenses } & 12,000 \
\text { Profit } & \$ 10,500 \

\end{array}$$
Raisin expects identical operating results this year.
-
Assume that the Raisin Division is currently operating at its capacity of 150,000 pounds of raisins. Also assume that the Peanut Division wants to purchase an additional 20,000 pounds of raisins from the Raisin Division. Under these conditions, what amount per pound of raisins would the Raisin Division have to charge the Peanut Division in order to maintain its current profit?

Accepted Answer

A)  $0.40 per pound. 
B)  $0.08 per pound. 
C)  $0.15 per pound. 
D)  $0.25 per pound. 
A)  $0.40 per pound. 
B)  $0.08 per pound. 
C)  $0.15 per pound. 
D)  $0.25 per pound.

Question 3

The optimal transfer price when there are intermediate markets and the seller is operating at capacity is normally the:

Accepted Answer

A)  full cost. 
B)  outlay cost. 
C)  variable cost. 
D)  market price. 
A)  full cost. 
B)  outlay cost. 
C)  variable cost. 
D)  market price.

Question 4

A division can sell externally for $40 per unit. Its variable manufacturing costs are $15 per unit, and its variable marketing costs are $6 per unit. What is the opportunity cost of transferring internally, assuming the division is operating at capacity?

Accepted Answer

A)  $15. 
B)  $19. 
C)  $21. 
D)  $25. 
A)  $15. 
B)  $19. 
C)  $21. 
D)  $25.

Question 5

Which of the following responsibility centers is affected by the use of market-based transfer prices?

Accepted Answer

A)  Cost center. 
B)  Profit center. 
C)  Revenue center. 
D)  Production center. 
A)  Cost center. 
B)  Profit center. 
C)  Revenue center. 
D)  Production center.

Question 6

The Hinges Division of Altoona Corporation sells 80,000 units of part Z-25 to the outside market. Part Z-25 sells for $40 and has a variable cost per unit of $22 and a fixed cost per unit of $10. The Hinges Division has a capacity to produce 100,000 units per period. The Door Division currently purchases 10,000 units of part Z-25 from the Hinges Division for $40. The Door Division has been approached by an outside supplier willing to supply the parts for $36.
- If Altoona uses a negotiated transfer pricing system, what is the minimum transfer price that should be charged for this transaction?

Accepted Answer

A)  $40. 
B)  $36. 
C)  $32. 
D)  $22. 
A)  $40. 
B)  $36. 
C)  $32. 
D)  $22.

Question 7

The Gear Division makes a part with the following characteristics:
$$\begin{array} { l l } 
\text { Production capacity } &  25,000 \text {units } \
\text { Selling price to outside customers } & \$ 18 \
\text { Variable cost per unit } & \$  11 \
\text { Fixed cost, total } & \$ 100,000
\end{array}$$
The Motor Division of the same company would like to purchase 10,000 units each period from the Gear Division. The Motor Division now purchases the part from an outside supplier at a price of $17 each.
-
Suppose that the Gear Division is operating at capacity and can sell all of its output to outside customers. If the Gear Division sells the parts to Motor Division at $17 per unit, the company as a whole will be:

Accepted Answer

A)  better off by $10,000 each period. 
B)  worse off by $20,000 each period. 
C)  worse off by $10,000 each period. 
D)  There will be no change in the status of the company as a whole. 
A)  better off by $10,000 each period. 
B)  worse off by $20,000 each period. 
C)  worse off by $10,000 each period. 
D)  There will be no change in the status of the company as a whole.

Multinational firms often face conflicting pressures when developing transfer pricing policies. Tax avoidance results when:

The optimal transfer price when there are intermediate markets and the seller is operating at capacity is normally the:

A division can sell externally for $40 per unit. Its variable manufacturing costs are $15 per unit, and its variable marketing costs are $6 per unit. What is the opportunity cost of transferring internally, assuming the division is operating at capacity?

Which of the following responsibility centers is affected by the use of market-based transfer prices?

Cost Accounting: Information for Decision Making

Cost Concepts and Behavior

Fundamentals of Cost-Volume-Profit Analysis

Fundamentals of Cost Analysis for Decision Making

Cost Estimation

Fundamentals of Product and Service Costing

Job Costing

Process Costing

Activity-Based Costing

Fundamentals of Cost Management

Service Department and Joint Cost Allocation

Fundamentals of Management Control Systems

Planning and Budgeting

Business Unit Performance Measurement

Fundamentals of Variance Analysis

Additional Topics in Variance Analysis

Performance Measurement to Support Business Strategy

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Exam 15: Transfer Pricing

Multinational firms often face conflicting pressures when developing transfer pricing policies. Tax avoidance results when:

The optimal transfer price when there are intermediate markets and the seller is operating at capacity is normally the:

A division can sell externally for $40 per unit. Its variable manufacturing costs are $15 per unit, and its variable marketing costs are $6 per unit. What is the opportunity cost of transferring internally, assuming the division is operating at capacity?

Which of the following responsibility centers is affected by the use of market-based transfer prices?

Cost Accounting: Information for Decision Making

Cost Concepts and Behavior

Fundamentals of Cost-Volume-Profit Analysis

Fundamentals of Cost Analysis for Decision Making

Cost Estimation

Fundamentals of Product and Service Costing

Job Costing

Process Costing

Activity-Based Costing

Fundamentals of Cost Management

Service Department and Joint Cost Allocation

Fundamentals of Management Control Systems

Planning and Budgeting

Business Unit Performance Measurement

Fundamentals of Variance Analysis

Additional Topics in Variance Analysis

Performance Measurement to Support Business Strategy

Filters