Exam 13: Responsibility Accounting,support Department Allocations,and Transfer Pricing

Smith Corporation Smith Corporation has two service departments: Data Processing and Personnel.Data Processing provides more service than does Personnel.Smith Corporation also has two production departments: A and B.Data Processing costs are allocated on the basis of assets used while Personnel costs are allocated based on the number of employees. Data Processing \ 1,000,000 15 \ 700,000 Personnel 300,000 8 230,000 A 500,000 12 125,000 B 3300,000 20 220,000 Refer to Smith Corporation.Using the direct method,what amount of Personnel costs is allocated to B (round to the nearest dollar)?

The minimum potential transfer price is determined by

Market based transfer prices are most appropriate for customized high-volume and high-cost services.

Transfer pricing is primarily incurred in

When management by exception is employed,both favorable and unfavorable variances should be investigated.

One of the main factors to consider when using a cost-based transfer price is whether to use actual or standard costs.

Ecology Solutions Corporation The Green Division of Ecology Solutions Co.has developed a wind generator that requires a special "S" ball bearing.The Ball Bearing Division of Ecology Solutions Co.has the capability to produce such a ball bearing. Unfortunately,the Ball Bearing Division is operating at capacity and will need to reduce production of another existing product,the "T" bearing,by 1,000 units per month to provide the 600 "S" bearings needed each month by the Green Division.The "T" bearing currently sells for $50 per unit.Variable costs incurred to produce the "T" bearing are $30 per unit;variable costs to produce the new "S" bearing would be $60 per unit. The Green Division has found an external supplier that would furnish the needed "S" bearings at $100 per unit.Assume that both the Green Division and Ball Bearing Division are independent,autonomous investment centers. Refer to Ecology Solutions Co.What is the maximum price per unit that Green Division would be willing to pay the Ball Bearing Division for the "S" bearing?

What are the advantages and disadvantages of decentralization within an organization?

Which service department cost allocation method assigns costs directly to revenue-producing areas with no other intermediate cost pools or allocations?

The fixed costs of service departments should be allocated to production departments based on

When using a market-based transfer price,a decision must be made which market price to use.

What are four criteria that a valid base for allocating costs should consider?

What are the advantages and disadvantages of market value as a transfer price?

Magnificent Motor Corporation The Engine Division of Magnificent Motor Corporation uses 5,000 carburetors per month in its production of automotive engines.It presently buys all of the carburetors it needs from two outside suppliers at an average cost of $100.The Carburetor Division of Magnificent Motor Corporation manufactures the exact type of carburetor that the Engine Division requires.The Carburetor Division is presently operating at its capacity of 15,000 units per month and sells all of its output to a foreign car manufacturer at $106 per unit.Its cost structure (on 15,000 units)is: Variable prochuction costs                  $70 Variable selling costs                             10 All fixed costs                                        10 Assume that the Carburetor Division would not incur any variable selling costs on units that are transferred internally. Refer to Magnificent Motor Corporation.If the two divisions agree to transact with one another,corporate profits will

Allocating service department costs to revenue-producing departments is an alternative to

Responsibility reports reflect the flow of information from operational units to top management.

In a decentralized company in which divisions may buy goods from one another,the transfer pricing system should be designed primarily to

Office Systems Corporation Office Systems Corporation manufactures and sells various high-tech office automation products.Two divisions of Office Systems Corporation are the Computer Chip Division and the Computer Division.The Computer Chip Division manufactures one product,a "super chip," that can be used by both the Computer Division and other external customers.The following information is available on this month's operations in the Computer Chip Division: Selling price per chip \5 0 Variable costs per chip \2 0 Fixed production costs \ 60,000 Fixed SG\&A costs \ 90,000 Monthly capacity 10,000 chip External sales 6,000 chip Internal sales 0 chip Presently,the Computer Division purchases no chips from the Computer Chips Division,but instead pays $45 to an external supplier for the 4,000 chips it needs each month. Refer to Office Systems Corporation.Two possible transfer prices (for 4,000 units)are under consideration by the two divisions: $35 and $40.Corporate profits would be ____ if $35 is selected as the transfer price rather than $40.

A situation in which managers pursue goals and objectives that are in the best interests of a particular segment rather than in the best interests of the organization as a whole is referred to as ____________________.

A profit center is typically an independent organizational unit.