Exam 14: Strategic Management of Costs

Market-based prices are least likely to be influenced by:

Setting transfer prices can be especially problematic when:

Setting prices low to drive competitors out of the market and then raising prices is called:

Adler Industries is a vertically integrated firm with several divisions that operate as decentralized profit centres. Adler's System Division manufactures scientific instruments and uses the products of two of Adler's other divisions. The Board Division manufactures printed circuit boards (PCBs). One PCB model is made exclusively for the Systems Division using proprietary designs, while less complex models are sold in outside markets. The products of the Transistor Division are sold in a well-developed competitive market; however, one transistor model is also used by the Systems Division. The costs per unit of the products used by the systems Division are presented below: PCB Transistor Direct materials \ 2.50 \ 0.80 Direct labour 4.50 1.00 Variable overhead 2.00 0.50 Fixed overhead Total cost \ 9.80 \ 3.05 The Board Division sells its commercial products at full cost plus a 25% markup and believes the proprietary board made for the Systems Division would sell for $12.25 per unit on the open market. The market price of the transistor used by the Systems Division is $3.70 per unit. A per unit transfer price from the Transistor Division to the Systems Division at full cost, $3.05, would:

The National Division of Roboto Company is buying 10,000 widgets from an outside supplier at $30 per unit. Roboto's Overseas Division, which is producing and selling at full capacity (12,000 units), has the following sales and cost structure: Sales price per unit \ 45.00 Variable cost per unit 22.50 Fixed cost (at capacity) per unit 15.00 If the National Division buys its 10,000 widgets from the Overseas Division, the transfer price should be:

Which of the following formulas calculates the profit-maximizing price?

Adler Industries is a vertically integrated firm with several divisions that operate as decentralized profit centres. Adler's System Division manufactures scientific instruments and uses the products of two of Adler's other divisions. The Board Division manufactures printed circuit boards (PCBs). One PCB model is made exclusively for the Systems Division using proprietary designs, while less complex models are sold in outside markets. The products of the Transistor Division are sold in a well-developed competitive market; however, one transistor model is also used by the Systems Division. The costs per unit of the products used by the systems Division are presented below: PCB Transistor Direct materials \ 2.50 \ 0.80 Direct labour 4.50 1.00 Variable overhead 2.00 0.50 Fixed overhead Total cost \ 9.80 \ 3.05 The Board Division sells its commercial products at full cost plus a 25% markup and believes the proprietary board made for the Systems Division would sell for $12.25 per unit on the open market. The market price of the transistor used by the Systems Division is $3.70 per unit. The Board and Systems Divisions have negotiated a transfer price of $11.00 per printed circuit board. This price will:

Which of the following is the main disadvantage of market-based pricing?

Peak load pricing refers to the illegal practice of charging different prices at different times to reduce capacity constraints.

Charging different prices at different times to reduce capacity constraints is called:

The Internet and global competition:

Which prices are recorded by departments under a dual-rate transfer pricing system? $\quad$ Selling Purchasing Department Department A) Variable cost Variable cost B) Variable cost Market price C) Market price Full cost D) Market price Variable cost

Dyggur Traders wishes to earn a 30% return on its $100,000 investment in equipment used to produce dog toys. Based on estimated sales of 10,000 toys next year, the costs per unit would be as follows: Variable cost \ 5.00 Fixed selling and administrative costs 2.00 Fixed manufacturing cost 1.00 At how much per unit should dog toys be priced for sale?

Which of the following transfer pricing systems potentially takes the most time to establish?

When an organization using market-based prices cannot differentiate its product due to extensive competition, the product:

The most commonly used pricing method in Canada is:

Which pricing method is used to capture market share by charging low introductory prices?

Adler Industries is a vertically integrated firm with several divisions that operate as decentralized profit centres. Adler's System Division manufactures scientific instruments and uses the products of two of Adler's other divisions. The Board Division manufactures printed circuit boards (PCBs). One PCB model is made exclusively for the Systems Division using proprietary designs, while less complex models are sold in outside markets. The products of the Transistor Division are sold in a well-developed competitive market; however, one transistor model is also used by the Systems Division. The costs per unit of the products used by the systems Division are presented below: PCB Transistor Direct materials \ 2.50 \ 0.80 Direct labour 4.50 1.00 Variable overhead 2.00 0.50 Fixed overhead Total cost \ 9.80 \ 3.05 The Board Division sells its commercial products at full cost plus a 25% markup and believes the proprietary board made for the Systems Division would sell for $12.25 per unit on the open market. The market price of the transistor used by the Systems Division is $3.70 per unit. Assume the Systems Division is able to purchase a large quantity of transistors from an outside source at $2.90 per unit. The Transistor Division, having excess capacity, agrees to lower its transfer price to $2.90 per unit. This action would:

The death spiral is: I. Setting prices very low II. Two organizations conspiring to set prices III. A problem of prices based on average cost and declining sales

In Canada, dumping is: I. Selling a product at a price that is below the market price II. Not a legal problem for Canadian companies that have no foreign subsidiaries III. Prosecuted by setting tariffs