Question 1

What are the advantages and disadvantages of using a negotiated transfer price?

Accepted Answer

The major advantage of a negotiated tran

Question 2

Some managers prefer to use cost rather than market price in controlling transfers between divisions.If cost is to be used,then it should be:

Accepted Answer

A)  full cost. 
B)  direct cost. 
C)  variable cost. 
D)  standard cost. 
A)  full cost. 
B)  direct cost. 
C)  variable cost. 
D)  standard cost.

Question 3

Part 43X costs the Southern Division of Norris Corporation $26 to make - direct materials are $10,direct labor is $4,variable manufacturing overhead is $9,and fixed manufacturing overhead is $3.Southern Division sells Part 43X to other companies for $30.The Northern Division of Norris Corporation can use Part 43X in one of its products.The Southern Division has enough idle capacity to produce all of the units of Part 43X that the Northern Division would require.What is the lowest transfer price at which the Southern Division should be willing to sell Part 43X to the Northern Division?

Accepted Answer

A)  $30. 
B)  $26. 
C)  $23. 
D)  $27. 
A)  $30. 
B)  $26. 
C)  $23. 
D)  $27.

Question 4

A transfer price is the value assigned to the transfer of goods or services between divisions within the same organization.

Accepted Answer

A) True 
 B)False

Question 5

The Gear Division makes a part with the following characteristics: 
$$\begin{array} { | l | r | } 
\hline \text { Production capacity } & 25,000 \text { units } \
\hline \text { Selling price to outside customers } & \$ 18 \
\hline \text { Variable cost per unit } & \$ 11 \
\hline \text { Fixed cost, total } & \$ 100,000 \
\hline
\end{array}$$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 the Gear Division has ample excess capacity to handle all of the Motor Division's needs without any increase in fixed costs and without cutting into sales to outside customers.If the Gear Division refuses to accept the $17 price internally and the Motor Division continues to buy from the outside supplier,the company as a whole will be:

Accepted Answer

A)  worse off by $70,000 each period. 
B)  better off by $10,000 each period. 
C)  worse off by $60,000 each period. 
D)  worse off by $20,000 each perioD.
See calculations below. 
A)  worse off by $70,000 each period. 
B)  better off by $10,000 each period. 
C)  worse off by $60,000 each period. 
D)  worse off by $20,000 each perioD.
See calculations below.

Question 6

A division can sell externally for $60 per unit.Its variable manufacturing costs are $35 per unit,and its variable marketing costs are $12 per unit.What is the opportunity cost of transferring internally,assuming the division is operating at capacity?

Accepted Answer

A)  $13. 
B)  $25. 
C)  $35. 
D)  $47. 
A)  $13. 
B)  $25. 
C)  $35. 
D)  $47.

Question 7

Division B has variable manufacturing costs of $50 per unit and fixed costs of $10 per unit.Assuming that Division B is operating significantly below capacity,what is the opportunity cost of an internal transfer when the market price is $75?

Accepted Answer

A)  $0. 
B)  $25. 
C)  $50. 
D)  $60. 
A)  $0. 
B)  $25. 
C)  $50. 
D)  $60.

Question 8

Why is transfer pricing important in tax accounting?

Accepted Answer

Transfer pricing is important in tax acc

Question 9

The following costs exist for Wiring Division of Corriander Corp.$$\begin{array} { | l | c | l | } 
\hline \text { Direct material } & \$ 67,500 & \
\hline \text { Direct labor } & 45,000 & \
\hline \text { Manufacturing overhead (25\% variable) } & 45,000 & \
\hline \text { Operating expenses ( } 30 \% \text { variable) } & 75,000 & \
\hline \text { Output } & 30,000 & \text { Units } \
\hline
\end{array}$$The output of the Wiring Division,which sells for $10/unit externally,is used by the Electrical Harness Division.Required:
Compute the transfer price for a unit of the Wiring Division's output using:
1)market price
2)variable production cost plus 30 percent
3)absorption cost plus 25 percent
4)variable cost
5)total cost plus 10 percent

Accepted Answer

1)$10 per unit.
2)1.3($67,500 + $45,000

Question 10

Cost-based transfer prices that include a normal markup to the costs act as a surrogate for:

Accepted Answer

A)  negotiated market prices. 
B)  opportunity costs. 
C)  differential costs. 
D)  market prices. 
A)  negotiated market prices. 
B)  opportunity costs. 
C)  differential costs. 
D)  market prices.

Question 11

In general,if a potential transfer has no effect on divisional profits:

Accepted Answer

A)  no transfer will take place between the divisions. 
B)  managers will be indifferent between making the transfer or not. 
C)  the organization should not intervene to force a transfer. 
D)  the optimal transfer price is the opportunity cost for the buying division. 
A)  no transfer will take place between the divisions. 
B)  managers will be indifferent between making the transfer or not. 
C)  the organization should not intervene to force a transfer. 
D)  the optimal transfer price is the opportunity cost for the buying division.

Question 12

Division X makes a part that it sells to customers outside of the company.Data concerning this part appear below:
$$\begin{array} { | l | r | } 
\hline \text { Selling price to outside customers } & \$ 50 \
\hline \text { Variable cost per unit } & \$ 30 \
\hline \text { Total fixed costs } & \$ 400,000 \
\hline \text { Capacity in units } & 25,000 \
\hline
\end{array}$$ 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 $49 per unit and would substitute the part made by Division X.Division Y requires 5,000 units of the part each period.Division X can sell all of the units it makes to outside customers.What is the lowest acceptable transfer price from the standpoint of the selling division?

Accepted Answer

A)  $50. 
B)  $49. 
C)  $46. 
D)  $30. 
A)  $50. 
B)  $49. 
C)  $46. 
D)  $30.

Question 13

Table Lake Cruises Inc. ,operates two divisions: (1)a recreational division that owns and manages charter boats on the lake and (2)a repair division that operates a division at Rogers.The repair division works on small gasoline crafts,as well medium size diesel engine boats.The repair division has an estimated variable cost of $45 per labor-hour.The repair division has a backlog of work for diesel engines.They charge $125 per hour for labor & overhead,which is standard for this type of work.The recreational division complained that it could hire its own repair workers for $85 per hour,including leasing an adequate work area.Required:
a.What is the minimum transfer price per hour that the repair division should obtain for its services,assuming it is operating at capacity?
b.What is the maximum transfer price per hour that the recreational division should pay?
c.If the repair division had idle capacity,what is the minimum transfer price that the repair division should obtain?

Accepted Answer

a.Repair is operating at capacity,transf

Question 14

If the selling division has excess capacity,the transfer price should be set at its:

Accepted Answer

A)  differential outlay costs. 
B)  differential outlay costs plus the foregone contribution to the organization of making the transfer internally. 
C)  selling price less the variable costs. 
D)  selling price less the variable costs plus the foregone contribution to the organization of making the transfer internally. 
A)  differential outlay costs. 
B)  differential outlay costs plus the foregone contribution to the organization of making the transfer internally. 
C)  selling price less the variable costs. 
D)  selling price less the variable costs plus the foregone contribution to the organization of making the transfer internally.

Question 15

Explain the general principle for determining the optimal transfer price.

Accepted Answer

The general principle for an optimal tra

Question 16

The transfer price that should be used by top management in evaluating whether a division should buy within the company or from an outside supplier is:

Accepted Answer

A)  negotiated transfer price. 
B)  transfer price based on full cost. 
C)  transfer price based on variable cost. 
D)  transfer price based on an open market price. 
A)  negotiated transfer price. 
B)  transfer price based on full cost. 
C)  transfer price based on variable cost. 
D)  transfer price based on an open market price.

Question 17

Top management intervention in settling transfer pricing disputes between two divisions should be avoided unless

Accepted Answer

A)  there is no intermediate markets. 
B)  the intermediate market is imperfect. 
C)  there is an extraordinarily large order. 
D)  there is no opportunity costs. 
A)  there is no intermediate markets. 
B)  the intermediate market is imperfect. 
C)  there is an extraordinarily large order. 
D)  there is no opportunity costs.

Question 18

The use of an optimal transfer price eliminates potential conflicts between an organization's interests and the divisional manager's interest.

Accepted Answer

A) True 
 B)False

What are the advantages and disadvantages of using a negotiated transfer price?

Some managers prefer to use cost rather than market price in controlling transfers between divisions.If cost is to be used,then it should be:

A transfer price is the value assigned to the transfer of goods or services between divisions within the same organization.

A division can sell externally for $60 per unit.Its variable manufacturing costs are $35 per unit,and its variable marketing costs are $12 per unit.What is the opportunity cost of transferring internally,assuming the division is operating at capacity?

Division B has variable manufacturing costs of $50 per unit and fixed costs of $10 per unit.Assuming that Division B is operating significantly below capacity,what is the opportunity cost of an internal transfer when the market price is $75?

Why is transfer pricing important in tax accounting?

Cost-based transfer prices that include a normal markup to the costs act as a surrogate for:

In general,if a potential transfer has no effect on divisional profits:

If the selling division has excess capacity,the transfer price should be set at its:

Explain the general principle for determining the optimal transfer price.

The transfer price that should be used by top management in evaluating whether a division should buy within the company or from an outside supplier is:

Top management intervention in settling transfer pricing disputes between two divisions should be avoided unless

The use of an optimal transfer price eliminates potential conflicts between an organization's interests and the divisional manager's interest.

Cost Accounting: Information for Decision Making

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

What are the advantages and disadvantages of using a negotiated transfer price?

Some managers prefer to use cost rather than market price in controlling transfers between divisions.If cost is to be used,then it should be:

A transfer price is the value assigned to the transfer of goods or services between divisions within the same organization.

A division can sell externally for $60 per unit.Its variable manufacturing costs are $35 per unit,and its variable marketing costs are $12 per unit.What is the opportunity cost of transferring internally,assuming the division is operating at capacity?

Division B has variable manufacturing costs of $50 per unit and fixed costs of $10 per unit.Assuming that Division B is operating significantly below capacity,what is the opportunity cost of an internal transfer when the market price is $75?

Why is transfer pricing important in tax accounting?

Cost-based transfer prices that include a normal markup to the costs act as a surrogate for:

In general,if a potential transfer has no effect on divisional profits:

If the selling division has excess capacity,the transfer price should be set at its:

Explain the general principle for determining the optimal transfer price.

The transfer price that should be used by top management in evaluating whether a division should buy within the company or from an outside supplier is:

Top management intervention in settling transfer pricing disputes between two divisions should be avoided unless

The use of an optimal transfer price eliminates potential conflicts between an organization's interests and the divisional manager's interest.

Cost Accounting: Information for Decision Making

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