Question 1

The most common method used to establish transfer prices is

Accepted Answer

A) negotiated transfer pricing. 
B) market-based transfer pricing. 
C) cost-plus transfer pricing. 
D) cost-based transfer pricing. 
A) negotiated transfer pricing. 
B) market-based transfer pricing. 
C) cost-plus transfer pricing. 
D) cost-based transfer pricing.

Question 2

Which of the following is consistent with generally accepted accounting principles?

Accepted Answer

A) Absorption-cost approach 
B) Contribution approach 
C) Variable-cost approach 
D) Both absorption-cost and contribution approach 
A) Absorption-cost approach 
B) Contribution approach 
C) Variable-cost approach 
D) Both absorption-cost and contribution approach

Question 3

The last step in calculating the hourly rate to be charged in time-and-material pricing is to

Accepted Answer

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. 
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.

Question 4

Use the following information for questions 
The Can Division of Fruit Products Inc. manufactures and sells tin cans externally for $0.60 per can. Its unit variable costs and unit fixed costs are $0.24 and $0.08, respectively. The Packaging Division wants to purchase 50,000 cans at $0.32 a can. Selling internally will save $0.02 a can.
-Assuming the Can Division is already operating at full capacity, what is the minimum transfer price it should accept?

Accepted Answer

A) $0.58 
B) $0.66 
C) $0.28 
D) $0.34 
A) $0.58 
B) $0.66 
C) $0.28 
D) $0.34

Question 5

Use the following information for questions 
Papillon Co. has determined the following per unit amounts: $$\begin{array} { l r l r } 
\text { Direct materials } & \$ 30 & \text { Fixed selling and administrative } & \$ 60 \
\text { Direct labor } & 36 & \text { Variable overhead } & 24 \
\text { Desired ROl } & 33 & \text { Variable selling and administrative } & 15 \
\text { Fixed overhead } & 45 & &
\end{array}$$
-The markup percentage using the variable-cost approach is

Accepted Answer

A) 131%. 
B) 102%. 
C) 90%. 
D) 80%. 
A) 131%. 
B) 102%. 
C) 90%. 
D) 80%.

Question 6

In the absorption-cost approach, the markup percentage covers the

Accepted Answer

A) desired ROI only. 
B) desired ROI and selling and administrative expenses. 
C) desired ROI and fixed costs. 
D) selling and administrative expenses only. 
A) desired ROI only. 
B) desired ROI and selling and administrative expenses. 
C) desired ROI and fixed costs. 
D) selling and administrative expenses only.

Question 7

Differences in tax rates between countries can complicate the determination of the appropriate transfer price.

Accepted Answer

A) True 
 B)False

Question 8

In the formula for a minimum transfer price, opportunity cost is the contribution margin of goods sold externally.

Accepted Answer

A) True 
 B)False

Question 9

Use the following information for questions 
Jaycee Auto Repair has the following budgeted costs for the next year: $\begin{array}{lcr}&\text { Time Charges }&\text { Material Charges }\
\text { Shop employees' wages and benefits } & \$ 120,000 & \$- \
\text { Parts manager's salary and benefits } & - & 45,000 \
\text { Office employee's salary and benefits } & 30,000 & 15,000 \
\text { Other overhead } & 15,000 & 40,000 \
\text { Invoice cost of parts and materials } & - & 400,000\
\text { Total budgeted costs }&\$165,000&\$500,000
\end{array}$
-Jaycee estimates that the repairs to a Cadillac Escalade damaged in an accident will take 45 hours of labor and $3,500 in parts and materials.The total cost of the repairs is

Accepted Answer

A) $5,890. 
B) $7,890. 
C) $5,775. 
D) $7,015. 
A) $5,890. 
B) $7,890. 
C) $5,775. 
D) $7,015.

Question 10

The number of transfers between divisions that are located in different countries has decreased as companies rely more on outsourcing.

Accepted Answer

A) True 
 B)False

Question 11

The absorption-cost approach is used by most companies for all of the following reasons except that

Accepted Answer

A) absorption cost information is readily provided by a company's cost accounting system. 
B) absorption cost provides the most defensible bases for justifying 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. 
A) absorption cost information is readily provided by a company's cost accounting system. 
B) absorption cost provides the most defensible bases for justifying 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.

Question 12

The time component under time-and-material pricing includes a

Accepted Answer

A) loading charge. 
B) charge for receiving, handling, and storing materials. 
C) portion of the materials clerk's wages. 
D) profit margin. 
A) loading charge. 
B) charge for receiving, handling, and storing materials. 
C) portion of the materials clerk's wages. 
D) profit margin.

Question 13

The price used to record a sale between divisions within the same vertically integrated company is called the

Accepted Answer

A) sales price. 
B) integrated price. 
C) transfer price. 
D) bargain price. 
A) sales price. 
B) integrated price. 
C) transfer price. 
D) bargain price.

Question 14

Why does the unit selling price increase when expected volume is lower than budgeted volume?

Accepted Answer

A) Variable costs and fixed costs have to be spread over fewer units. 
B) Fixed costs and desired ROI have to be spread over fewer units. 
C) Variable costs and desired ROI have to be spread over fewer units. 
D) Fixed costs only have to be spread over fewer units. 
A) Variable costs and fixed costs have to be spread over fewer units. 
B) Fixed costs and desired ROI have to be spread over fewer units. 
C) Variable costs and desired ROI have to be spread over fewer units. 
D) Fixed costs only have to be spread over fewer units.

Question 15

Assume the Thread Division has excess capacity.The Garment Division wants the Thread Division to furnish them additional spools of thread that could be made using the excess capacity.In a negotiated transfer price, the Thread Division should accept as a minimum any transfer price that exceeds the

Accepted Answer

A) total cost of producing spools for outside sales. 
B) variable costs of producing the additional spools for the Garment Division. 
C) contribution margin and outside spool sales. 
D) foregone contribution margin on outside spool sales. 
A) total cost of producing spools for outside sales. 
B) variable costs of producing the additional spools for the Garment Division. 
C) contribution margin and outside spool sales. 
D) foregone contribution margin on outside spool sales.

Question 16

The market-based transfer price approach produces a higher total contribution margin to the company than the cost-based approach.

Accepted Answer

A) True 
 B)False

Question 17

Use the following information for questions 
Custom Shoes Co. has gathered the following information concerning one model of shoe: $\begin{array}{ll}
\text { Variable manufacturing costs } & \$ 40,000 \
\text { Variable selling and administrative costs } & \$ 20,000 \
\text { Fixed manufacturing costs } & \$ 160,000 \
\text { Fixed selling and administrative costs } & \$ 120,000 \
\text { Investment } & \$ 1,700,000 \
\text { ROl } & 30 \% \
\text { Planned production and sales } & 5,000 \text { pairs }
\end{array}$
-What is the desired ROI per pair of shoes?

Accepted Answer

A) $68 
B) $168 
C) $102 
D) $170 
A) $68 
B) $168 
C) $102 
D) $170

Question 18

Use the following information for questions 
Tuttle Motorcycles Inc. manufactures and sells high-priced motorcycles. The Engine Division produces and sells engines to other motorcycle companies and internally to the Production Division. It has been decided that the Engine Division will sell 20,000 units to the Production Division at $1,050 a unit. The Engine Division, currently operating at capacity, has a unit sales price of $2,550 and unit variable costs and fixed costs of $1,050 and $750, respectively. The Production Division is currently paying $2,400 per unit to an outside supplier. $90 per unit can be saved on internal sales from reduced selling expenses.
-What is the minimum transfer price that the Engine Division should accept?

Accepted Answer

A) $2,460 
B) $2,550 
C) $2,400 
D) $1,500 
A) $2,460 
B) $2,550 
C) $2,400 
D) $1,500

Question 19

Under the negotiated transfer pricing approach, the minimum transfer price is established by the

Accepted Answer

A) purchasing division. 
B) corporate headquarters management. 
C) selling division. 
D) corporate negotiator. 
A) purchasing division. 
B) corporate headquarters management. 
C) selling division. 
D) corporate negotiator.

Question 20

Well Water Inc.wants to produce and sell a new flavored water.In order to penetrate the market, the product will have to sell at $2.00 per 12 oz.bottle.The following data has been collected: $\begin{array}{ll}
\text { Annual sales } & 50,000 \text { bottles } \
\text { Projected selling and administrative costs } & \$ 8,000 \
\text { Desired profit } & \$ 70,000
\end{array}$ The target cost per bottle is

Accepted Answer

A) $0.44. 
B) $0.60. 
C) $0.16. 
D) $0.40. 
A) $0.44. 
B) $0.60. 
C) $0.16. 
D) $0.40.

The most common method used to establish transfer prices is

Which of the following is consistent with generally accepted accounting principles?

The last step in calculating the hourly rate to be charged in time-and-material pricing is to

In the absorption-cost approach, the markup percentage covers the

Differences in tax rates between countries can complicate the determination of the appropriate transfer price.

In the formula for a minimum transfer price, opportunity cost is the contribution margin of goods sold externally.

The number of transfers between divisions that are located in different countries has decreased as companies rely more on outsourcing.

The absorption-cost approach is used by most companies for all of the following reasons except that

The time component under time-and-material pricing includes a

The price used to record a sale between divisions within the same vertically integrated company is called the

Why does the unit selling price increase when expected volume is lower than budgeted volume?

Assume the Thread Division has excess capacity.The Garment Division wants the Thread Division to furnish them additional spools of thread that could be made using the excess capacity.In a negotiated transfer price, the Thread Division should accept as a minimum any transfer price that exceeds the

The market-based transfer price approach produces a higher total contribution margin to the company than the cost-based approach.

Under the negotiated transfer pricing approach, the minimum transfer price is established by the

Introduction to Financial Statements

A Further Look at Financial Statements

The Accounting Information System

Accrual Accounting Concepts

Merchandising Operations and the Multiple-Step Income Statement

Reporting and Analyzing Inventory

Fraud, Internal Control, and Cash

Reporting and Analyzing Long-Lived Assets

Reporting and Analyzing Liabilities

Reporting and Analyzing Stockholders Equity

Statement of Cash Flows

Financial Analysis: the Big Picture

Managerial Accounting

Time Value of Money

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Exam 8: Reporting and Analyzing Receivables

The most common method used to establish transfer prices is

Which of the following is consistent with generally accepted accounting principles?

The last step in calculating the hourly rate to be charged in time-and-material pricing is to

In the absorption-cost approach, the markup percentage covers the

Differences in tax rates between countries can complicate the determination of the appropriate transfer price.

In the formula for a minimum transfer price, opportunity cost is the contribution margin of goods sold externally.

The number of transfers between divisions that are located in different countries has decreased as companies rely more on outsourcing.

The absorption-cost approach is used by most companies for all of the following reasons except that

The time component under time-and-material pricing includes a

The price used to record a sale between divisions within the same vertically integrated company is called the

Why does the unit selling price increase when expected volume is lower than budgeted volume?

Assume the Thread Division has excess capacity.The Garment Division wants the Thread Division to furnish them additional spools of thread that could be made using the excess capacity.In a negotiated transfer price, the Thread Division should accept as a minimum any transfer price that exceeds the

The market-based transfer price approach produces a higher total contribution margin to the company than the cost-based approach.

Under the negotiated transfer pricing approach, the minimum transfer price is established by the

Introduction to Financial Statements

A Further Look at Financial Statements

The Accounting Information System

Accrual Accounting Concepts

Merchandising Operations and the Multiple-Step Income Statement

Reporting and Analyzing Inventory

Fraud, Internal Control, and Cash

Reporting and Analyzing Long-Lived Assets

Reporting and Analyzing Liabilities

Reporting and Analyzing Stockholders Equity

Statement of Cash Flows

Financial Analysis: the Big Picture

Managerial Accounting

Time Value of Money

Filters