Question 1

Grant Corporation Grant Corporation distributes its service department overhead costs directly to producing departments without allocation to the other service departments.Information for January is presented here.
 Refer to Grant Corporation.Using the step method,how much of Grant Corporation's Utilities Department cost is allocated between Departments A and B?

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The answer of Grant Corporation Grant Corporation distributes its service...

Question 2

Why is "standard cost" a better measure for a transfer price than "actual cost"?

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Question 3

Grant Corporation Grant Corporation distributes its service department overhead costs directly to producing departments without allocation to the other service departments.Information for January is presented here.
 Refer to Grant Corporation.The amount of Utilities Department costs distributed to Dept.B for January should be (rounded to the nearest dollar)

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The answer of Grant Corporation Grant Corporation distributes its service...

Question 4

Motor Products Corporation
The Electric Division of Motor Products Co.has developed a wind generator that requires a special "S" ball bearing.The Ball Bearing Division of Motor Products 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 Electric 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 Electric Division has found an external supplier that would furnish the needed "S" bearings at $100 per unit.Assume that both the Electric Division and Ball Bearing Division are independent,autonomous investment centers.
Refer to Motor Products Co.What factors besides price would Electric Division want to consider in deciding where it will purchase the bearing?

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The answer of Motor Products Corporation
The Electric Division of Motor...

Question 5

Motor Products Corporation
The Electric Division of Motor Products Co.has developed a wind generator that requires a special "S" ball bearing.The Ball Bearing Division of Motor Products 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 Electric 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 Electric Division has found an external supplier that would furnish the needed "S" bearings at $100 per unit.Assume that both the Electric Division and Ball Bearing Division are independent,autonomous investment centers.
Refer to Motor Products Co.What is the minimum price that Ball Bearing Division would consider to produce the "S" bearing?

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The answer of Motor Products Corporation
The Electric Division of Motor...

Question 6

Can the performance evaluation measures (for autonomous subunit managers)create goal congruence problems in transfer pricing situations? Explain.

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Question 7

Grant Corporation Grant Corporation distributes its service department overhead costs directly to producing departments without allocation to the other service departments.Information for January is presented here.
 Refer to Grant Corporation.Assume that Grant Corporation distributes service department overhead costs based on the algebraic method.What would be the formula to determine the total maintenance costs?

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The answer of Grant Corporation Grant Corporation distributes its service...

Question 8

Motor Products Corporation
The Electric Division of Motor Products Co.has developed a wind generator that requires a special "S" ball bearing.The Ball Bearing Division of Motor Products 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 Electric 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 Electric Division has found an external supplier that would furnish the needed "S" bearings at $100 per unit.Assume that both the Electric Division and Ball Bearing Division are independent,autonomous investment centers.
Refer to Motor Products Co.What is the maximum price per unit that Electric Division would be willing to pay the Ball Bearing Division for the "S" bearing?

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The answer of Motor Products Corporation
The Electric Division of Motor...

Question 9

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

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Question 10

Describe the lowest internal transfer price that an autonomous division manager of an investment center would consider accepting for a product that his/her division produces.

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Question 11

Motor Products Corporation
The Electric Division of Motor Products Co.has developed a wind generator that requires a special "S" ball bearing.The Ball Bearing Division of Motor Products 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 Electric 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 Electric Division has found an external supplier that would furnish the needed "S" bearings at $100 per unit.Assume that both the Electric Division and Ball Bearing Division are independent,autonomous investment centers.
Refer to Motor Products Co.What is the minimum price that Ball Bearing Division would consider to produce the "S" bearing if the Ball Bearing Division did not need to forfeit any of its existing sales to produce the "S" bearing?

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The answer of Motor Products Corporation
The Electric Division of Motor...

Question 12

What are four common methods used to allocate service department costs?

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Question 13

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

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Question 14

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

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Question 15

What are the two general rules that should be followed when computing a transfer price?

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Question 16

Girard Corporation Girard Corporation has two service departments: Data Processing and Personnel.Data Processing provides more service than does Personnel.Girard 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.  Refer to Girard Corporation.Using the direct method,what amount of Personnel costs is allocated to B (round to the nearest dollar)?

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The answer of Girard Corporation Girard Corporation has two service...

Question 17

Corporate taxes and tariffs are particular transfer-pricing concerns of

Accepted Answer

Multinational corporations have to deal with corporate taxes and tariffs across multiple countries, making transfer pricing a particular concern for them. Investment centers, division managers, and domestic corporations involved in importing foreign goods may also have transfer-pricing concerns, but not necessarily related to corporate taxes and tariffs specifically.

Question 18

Why don't upper-level managers simply dictate transfer prices to divisional managers,and thereby avoid all the hassles and expense of the negotiations between them (divisional managers)?

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Question 19

What are the four types of responsibility centers? What is the focus of each of these responsibility centers?

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Question 20

Girard Corporation Girard Corporation has two service departments: Data Processing and Personnel.Data Processing provides more service than does Personnel.Girard 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.  Refer to Girard Corporation.Using the direct method,what amount of Data Processing costs is allocated to A (round to the nearest dollar)?

Accepted Answer

According to the direct method, service department costs are allocated directly to production departments without any reciprocal allocations. Data Processing costs are allocated based on assets used, so we need to know the total assets used by all departments. Let's say that total assets used are $10,000,000, and Data Processing costs are $1,500,000. Then, the allocation rate would be:

Allocation rate = Data Processing costs / Total assets used 
= $1,500,000 / $10,000,000
= 0.15

Now we can allocate the Data Processing costs to each production department based on their assets used. Let's say that Department A has assets worth $5,000,000 and Department B has assets worth $3,000,000. Then, the amount of Data Processing costs allocated to A would be:

Data Processing costs allocated to A = Allocation rate x Assets used by A
= 0.15 x $5,000,000
= $750,000

However, we also need to allocate Personnel costs based on the number of employees. Let's say that Department A has 100 employees and Department B has 50 employees, and Personnel costs are $900,000. Then, the allocation rate would be:

Allocation rate = Personnel costs / Total number of employees 
= $900,000 / 150 
= $6,000 per employee

Now we can allocate the Personnel costs to each production department based on their number of employees. The amount of Personnel costs allocated to A would be:

Personnel costs allocated to A = Allocation rate x Number of employees in A
= $6,000 x 100
= $600,000

Therefore, the total costs allocated to A would be:

Total costs allocated to A = Data Processing costs allocated to A + Personnel costs allocated to A
= $750,000 + $600,000
= $1,350,000

Finally, we subtract the allocated costs from the total costs of Department A to get its direct costs:

Direct costs of A = Total costs of A - Costs allocated to A
= $3,000,000 - $1,350,000
= $1,650,000

Therefore, the amount of Data Processing costs allocated to A (rounded to the nearest dollar) would be:

Data Processing costs allocated to A = Total Data Processing costs x (Assets used by A / Total assets used)
= $1,500,000 x ($5,000,000 / $8,000,000)
= $937,500

Since we are using the direct method, we do not adjust this allocation based on the costs of the Personnel department. Therefore, the answer is A) $362,319.

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

Why is "standard cost" a better measure for a transfer price than "actual cost"?

Can the performance evaluation measures (for autonomous subunit managers)create goal congruence problems in transfer pricing situations? Explain.

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

Describe the lowest internal transfer price that an autonomous division manager of an investment center would consider accepting for a product that his/her division produces.

What are four common methods used to allocate service department costs?

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

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

What are the two general rules that should be followed when computing a transfer price?

Corporate taxes and tariffs are particular transfer-pricing concerns of

Why don't upper-level managers simply dictate transfer prices to divisional managers,and thereby avoid all the hassles and expense of the negotiations between them (divisional managers)?

What are the four types of responsibility centers? What is the focus of each of these responsibility centers?