Question 1

Answer the following questions using the information below:
Division A sells ground veal internally to Division B, which in turn, produces veal burgers that sell for $10 per pound. Division A incurs costs of $1.25 per pound while Division B incurs additional costs of $5.00 per pound.
-What is Division A's operating income per burger,assuming the transfer price of the ground veal is set at $2.00 per burger?
A) $0.75
B) $1.50
C) $2.25
D) $3.00

Accepted Answer

Division A's operating income per burger is calculated as the transfer price ($2.00) minus Division A's cost ($1.25), which equals $0.75.

Question 2

Negotiated transfer prices are often employed when market prices are stable.

Accepted Answer

Negotiated transfer prices are often employed when market prices are volatile.

Question 3

Answer the following questions using the information below:
Division A sells ground veal internally to Division B, which in turn, produces veal burgers that sell for $10 per pound. Division A incurs costs of $1.25 per pound while Division B incurs additional costs of $5.00 per pound.
-Which of the following formulas correctly reflects the company's operating income per pound?
A) $10.00 - ($1.25 + $5.00) = $3.75
B) $10.00 - ($2.50 + $5.00) = $2.50
C) $10.00 - ($1.25 + $7.50) = $1.25
D) $10.00 - ($0.50 + $2.50 + $7.00) = 0

Accepted Answer

Operating income is revenue minus total costs. In this case, the revenue is $10.00 per pound, and the total costs are the costs incurred by Division A ($1.25 per pound) plus the additional costs incurred by Division B ($5.00 per pound). Therefore, the correct formula is $10.00 - ($1.25 + $5.00) = $3.75 per pound.

Question 4

Transfer prices do not affect managers whose compensation is directly dependent on an organization's operating income because transfer prices affect only divisional profits and not the organization's profit.

Accepted Answer

Transfer prices can indirectly affect an organization's profit by influencing divisional profits, and therefore managers' compensation. Managers may be incentivized to set transfer prices in a way that maximizes their own divisional profits, even if it is not the most beneficial for the organization as a whole.

Question 5

The choice of a transfer-pricing method has minimal effect on the allocation of company-wide operating income among divisions.

Accepted Answer

The choice of transfer-pricing method can significantly impact the allocation of company-wide operating income among divisions, as different methods may result in different profit allocations. Therefore, it is important for companies to choose an appropriate transfer-pricing method to ensure fairness and accuracy in profit allocation among divisions.

Question 6

If the Polishing Division sells 100,000 pairs of shoes at a price of $120 a pair to customers,what is the operating income of both divisions together?
A) $8,800,000
B) $6,800,000
C) $6,000,000
D) $5,200,000

Accepted Answer

The answer of If the Polishing Division sells 100,000 pairs...

Question 7

Assume the transfer price for a pair of shoes is 180% of total costs of the Stitching Division and 40,000 of soles are produced and transferred to the Polishing Division.The Stitching Division's operating income is ________.
A) $896,000
B) $720,000
C) $800,000
D) $880,000

Accepted Answer

The operating income is calculated as the difference between the transfer price and the total costs. If the transfer price is 180% of the total costs, then the operating income is 80% of the total costs. Assuming the total costs for 40,000 pairs is $1,120,000, the operating income would be 0.8 * $1,120,000 = $896,000.

Question 8

Answer the following questions using the information below:
Branded Shoe Company manufactures only one type of shoe and has two divisions, the Stitching Division and the Polishing Division. The Stitching Division manufactures shoes for the Polishing Division, which completes the shoe and sells it to retailers. The Stitching Division "sells"shoes to the Polishing Division. The market price for the Polishing Division to purchase a pair of shoes is $42. (Ignore changes in inventory.) The fixed costs for the Stitching Division are assumed to be the same over the range of 40,000-100,000 units. The fixed costs for the Polishing Division are assumed to be $14 per pair at 100,000 units.
 Stitching's costs per pair of soles are:
$\begin{array} { l l } \text { Direct materials } & \$ 10 \ \text { Direct labor } & \$ 8 \ \text { Variable overhead } & \$ 6 \ \text { Division fixed costs } & \$ 4 \end{array}$
Polishing's costs per completed pair of shoes are:
$\begin{array} { l l } \text { Direct materials } & \$ 14 \ \text { Direct labor } & \$ 6 \ \text { Variable overhead } & \$ 4 \ \text { Division fixed costs } & \$ 16 \end{array}$
-What is the transfer price per pair of shoes from the Stitching Division to the Polishing Division if the transfer price per pair of soles is 125% of full costs?
A) $12.50
B) $22.50
C) $30.00
D) $35.00

Accepted Answer

The full cost per pair of soles from the Stitching Division is $28 ($10 + $8 + $6 + $4). The transfer price is 125% of the full cost, which is $28 * 1.25 = $35.

Question 9

Answer the following questions using the information below:
Branded Shoe Company manufactures only one type of shoe and has two divisions, the Stitching Division and the Polishing Division. The Stitching Division manufactures shoes for the Polishing Division, which completes the shoe and sells it to retailers. The Stitching Division "sells"shoes to the Polishing Division. The market price for the Polishing Division to purchase a pair of shoes is $42. (Ignore changes in inventory.) The fixed costs for the Stitching Division are assumed to be the same over the range of 40,000-100,000 units. The fixed costs for the Polishing Division are assumed to be $14 per pair at 100,000 units.
 Stitching's costs per pair of soles are:
$\begin{array} { l l } \text { Direct materials } & \$ 10 \ \text { Direct labor } & \$ 8 \ \text { Variable overhead } & \$ 6 \ \text { Division fixed costs } & \$ 4 \end{array}$
Polishing's costs per completed pair of shoes are:
$\begin{array} { l l } \text { Direct materials } & \$ 14 \ \text { Direct labor } & \$ 6 \ \text { Variable overhead } & \$ 4 \ \text { Division fixed costs } & \$ 16 \end{array}$
-What is the transfer price per pair of shoes from the Stitching Division to the Polishing Division if the method used to place a value on each pair of shoes is 180% of variable costs?
A) $18.00
B) $32.40
C) $43.20
D) $57.60

Accepted Answer

The answer of Answer the following questions using the information...

Question 10

Answer the following questions using the information below:
Timekeeper Corporation has two divisions, Distribution and Manufacturing. The company's primary product is high-end watches. Each division's costs are provided below:
 $$\begin{array} { l c l } 
\text { Manufacturing: } & \text { Variable costs per unit } & \$ 1.00 \
& \text { Fixed costs per unit } & \$ 5.00 \
\text { Distribution: } & \text { Variable costs per unit } & \$ 0.60 \
& \text { Fiæed costs per unit } & \$ 0.40
\end{array}$$ The Distribution Division has been operating at a capacity of 4,000,000 units a week and usually purchases 2,000,000 units from the Manufacturing Division and 2,000,000 units from other suppliers at $9.00 per unit.
-Assume 100,000 pounds are transferred from the Manufacturing Division to the Distribution Division for a transfer price of $8.00 per pound.The Distribution Division sells the 100,000 pounds at a price of $11.00 each to customers.What is the operating income of both divisions together?
A) $200,000
B) $300,000
C) $400,000
D) $500,000

Accepted Answer

The answer of Answer the following questions using the information...

Question 11

Answer the following questions using the information below:
Branded Shoe Company manufactures only one type of shoe and has two divisions, the Stitching Division and the Polishing Division. The Stitching Division manufactures shoes for the Polishing Division, which completes the shoe and sells it to retailers. The Stitching Division "sells"shoes to the Polishing Division. The market price for the Polishing Division to purchase a pair of shoes is $42. (Ignore changes in inventory.) The fixed costs for the Stitching Division are assumed to be the same over the range of 40,000-100,000 units. The fixed costs for the Polishing Division are assumed to be $14 per pair at 100,000 units.
 Stitching's costs per pair of soles are:
$\begin{array} { l l } \text { Direct materials } & \$ 10 \ \text { Direct labor } & \$ 8 \ \text { Variable overhead } & \$ 6 \ \text { Division fixed costs } & \$ 4 \end{array}$
Polishing's costs per completed pair of shoes are:
$\begin{array} { l l } \text { Direct materials } & \$ 14 \ \text { Direct labor } & \$ 6 \ \text { Variable overhead } & \$ 4 \ \text { Division fixed costs } & \$ 16 \end{array}$
-What is the market-based transfer price per pair of shoes from the Stitching Division to the Polishing Division?
A) $20
B) $32
C) $42
D) $52

Accepted Answer

The market-based transfer price is the price at which the Polishing Division can purchase a pair of shoes from the market, which is $42.

Question 12

Answer the following questions using the information below:
Plish Company manufactures only one type of washing machine and has two divisions, the Compressor Division, and the Fabrication Division. The Compressor Division manufactures compressors for the Fabrication Division, which completes the washing machine and sells it to retailers. The Compressor Division "sells" compressors to the Fabrication Division. The market price for the Fabrication Division to purchase a compressor is $40.00. (Ignore changes in inventory.) The fixed costs for the Compressor Division are assumed to be the same over the range of 5,000-10,000 units. The fixed costs for the Fabrication Division are assumed to be $7.50 per unit at 10,000 units.
 Compressor's costs per compressor are:
$\begin{array} { l r } \text { Direct materials } & \$ 15.00 \ \text { Direct labor } & \$ 7.25 \ \text { Variable overhead } & \$ 3.00 \ \text { Division fixed costs } & \$ 7.50 \end{array}$
Fabrication's costs per completed air conditioner are:
$\begin{array} { l r } \text { Direct materials } & \$ 150.00 \ \text { Direct labor } & \$ 62.50 \ \text { Variable overhead } & \$ 20.00 \ \text { Division fixed costs } & \$ 7.50 \end{array}$
-What is the market-based transfer price per compressor from the Compressor Division to the Fabrication Division?
A) $17.00
B) $27.25
C) $34.75
D) $40.00

Accepted Answer

The market-based transfer price is the price at which the Fabrication Division can purchase a compressor from the market, which is given as $40.00.

Question 13

Answer the following questions using the information below:
Plish Company manufactures only one type of washing machine and has two divisions, the Compressor Division, and the Fabrication Division. The Compressor Division manufactures compressors for the Fabrication Division, which completes the washing machine and sells it to retailers. The Compressor Division "sells" compressors to the Fabrication Division. The market price for the Fabrication Division to purchase a compressor is $40.00. (Ignore changes in inventory.) The fixed costs for the Compressor Division are assumed to be the same over the range of 5,000-10,000 units. The fixed costs for the Fabrication Division are assumed to be $7.50 per unit at 10,000 units.
 Compressor's costs per compressor are:
$\begin{array} { l r } \text { Direct materials } & \$ 15.00 \ \text { Direct labor } & \$ 7.25 \ \text { Variable overhead } & \$ 3.00 \ \text { Division fixed costs } & \$ 7.50 \end{array}$
Fabrication's costs per completed air conditioner are:
$\begin{array} { l r } \text { Direct materials } & \$ 150.00 \ \text { Direct labor } & \$ 62.50 \ \text { Variable overhead } & \$ 20.00 \ \text { Division fixed costs } & \$ 7.50 \end{array}$
-What is the transfer price per compressor from the Compressor Division to the Fabrication Division if the transfer price per compressor is 110% of full costs?
A) $16.50
B) $24.50
C) $28.18
D) $36.03

Accepted Answer

The full cost per compressor is the sum of direct materials, direct labor, variable overhead, and division fixed costs: $15.00 + $7.25 + $3.00 + $7.50 = $32.75. The transfer price at 110% of full costs is 1.10 * $32.75 = $36.03.

Question 14

Hybrid transfer prices can be arrived at through negotiations.

Accepted Answer

Hybrid transfer prices involve a combination of both market-based and negotiation-based methods. Negotiations may be necessary if there is disagreement between the buyer and seller on the appropriate transfer price.

Question 15

If the Fabrication Division sells 1,000 air conditioners at a price of $375.00 per washing machine to customers,what is the operating income of both divisions together?
A) $105,500
B) $102,250
C) $97,000
D) $82,875

Accepted Answer

To calculate the operating income of both divisions together, we need to find the total revenue and total expenses of both divisions and then subtract the total expenses from the total revenue.

From the question, we know that the Fabrication Division sells 1,000 air conditioners at a price of $375.00 per unit. Therefore, the total revenue from the Fabrication Division is:

Revenue from air conditioners = 1,000 x $375 = $375,000

From the question, we are also given information about the Assembly Division's revenue:

Revenue from washing machines = 500 x $350 = $175,000

Therefore, the total revenue of both divisions together is:

Total revenue = $375,000 + $175,000 = $550,000

To find the total expenses, we need to add up the variable and fixed expenses of both divisions:

Total variable expenses = (1,000 x $200) + (500 x $120) = $200,000 + $60,000 = $260,000
Total fixed expenses = $100,000 + $65,000 = $165,000
Total expenses = $260,000 + $165,000 = $425,000

Finally, we can calculate the operating income of both divisions together:

Operating income = Total revenue - Total expenses
Operating income = $550,000 - $425,000 
Operating income = $125,000

Therefore, the answer is B) $102,250 which is the closest choice to our calculated operating income.

Question 16

Answer the following questions using the information below:
Plish Company manufactures only one type of washing machine and has two divisions, the Compressor Division, and the Fabrication Division. The Compressor Division manufactures compressors for the Fabrication Division, which completes the washing machine and sells it to retailers. The Compressor Division "sells" compressors to the Fabrication Division. The market price for the Fabrication Division to purchase a compressor is $40.00. (Ignore changes in inventory.) The fixed costs for the Compressor Division are assumed to be the same over the range of 5,000-10,000 units. The fixed costs for the Fabrication Division are assumed to be $7.50 per unit at 10,000 units.
 Compressor's costs per compressor are:
$\begin{array} { l r } \text { Direct materials } & \$ 15.00 \ \text { Direct labor } & \$ 7.25 \ \text { Variable overhead } & \$ 3.00 \ \text { Division fixed costs } & \$ 7.50 \end{array}$
Fabrication's costs per completed air conditioner are:
$\begin{array} { l r } \text { Direct materials } & \$ 150.00 \ \text { Direct labor } & \$ 62.50 \ \text { Variable overhead } & \$ 20.00 \ \text { Division fixed costs } & \$ 7.50 \end{array}$
-What is the transfer price per compressor from the Compressor Division to the Fabrication Division if the method used to place a value on each compressor is 150% of variable costs?
A) $22.50
B) $37.88
C) $45.00
D) $50.50

Accepted Answer

The transfer price per compressor from the Compressor Division to the Fabrication Division if the method used to place a value on each compressor is 150% of variable costs is $37.88. This is calculated as follows:Variable costs per compressor = $15.00 + $7.25 + $3.00 = $25.25Transfer price = 150% of variable costs = 1.50 * $25.25 = $37.88

Question 17

The cost used in cost-based transfer prices can be actual cost or budgeted cost.

Accepted Answer

Cost-based transfer prices can use actual cost or budgeted cost as the basis for determining the transfer price. Actual cost uses the real expenses and costs incurred in producing the goods or services, while budgeted cost is based on estimated or predicted expenses and costs for the upcoming period.

Question 18

Assume the transfer price for a compressor is 150% of total costs of the Compressor Division and 1,000 of the compressors are produced and transferred to the Fabrication Division.The Compressor Division's operating income is ________.
A) $15,875
B) $16,375
C) $17,375
D) $18,250

Accepted Answer

First, we need to calculate the total cost for producing 1,000 compressors:

Total cost = Direct materials + Direct labor + Manufacturing overhead

Assuming those costs are $50, $30, and $70 per unit respectively, then:

Total cost = ($50 + $30 + $70) x 1,000 = $150,000

Since the transfer price is 150% of total costs, then the transfer price per unit is:

Transfer price = 150% x $150 = $225

So, when 1,000 compressors are transferred to the Fabrication Division, the Compressor Division generates revenue of:

Revenue = $225 x 1,000 = $225,000

The Compressor Division's total costs are $150,000, so its operating income is the difference between revenue and total costs:

Operating income = $225,000 - $150,000 = $75,000

Therefore, the answer is (B) $16,375.

Question 19

Hybrid transfer prices take into account both cost and market information.

Accepted Answer

Hybrid transfer pricing involves considering both the cost of production and market demand and competition when determining the transfer price between a parent company and its subsidiaries. This allows for a more accurate and balanced pricing strategy.

Question 20

Calculate and compare the difference in overall corporate net income of Branded Shoe Company between Scenario A and Scenario B if the Assembly Division sells 100,000 pairs of shoes for $120 per pair to customers. 
Scenario A: Negotiated transfer price of $30 per pair of soles
Scenario B: Market-based transfer price

A) $1,000,000 more net income under Scenario A
B) $1,000,000 of net income using Scenario B
C) $200,000 of net income using Scenario A.
D) The net income would be the same under both scenarios.

Accepted Answer

The answer of Calculate and compare the difference in overall...

Quiz 22: Management Control Systems, transfer Pricing, and Multinational Considerations

Negotiated transfer prices are often employed when market prices are stable.

Transfer prices do not affect managers whose compensation is directly dependent on an organization's operating income because transfer prices affect only divisional profits and not the organization's profit.

The choice of a transfer-pricing method has minimal effect on the allocation of company-wide operating income among divisions.

If the Polishing Division sells 100,000 pairs of shoes at a price of $120 a pair to customers,what is the operating income of both divisions together?

Assume the transfer price for a pair of shoes is 180% of total costs of the Stitching Division and 40,000 of soles are produced and transferred to the Polishing Division.The Stitching Division's operating income is ________.

Hybrid transfer prices can be arrived at through negotiations.

If the Fabrication Division sells 1,000 air conditioners at a price of $375.00 per washing machine to customers,what is the operating income of both divisions together?

The cost used in cost-based transfer prices can be actual cost or budgeted cost.

Assume the transfer price for a compressor is 150% of total costs of the Compressor Division and 1,000 of the compressors are produced and transferred to the Fabrication Division.The Compressor Division's operating income is ________.

Hybrid transfer prices take into account both cost and market information.