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

Question 1

Line managers supervising individual refineries are concerned with ________.

A) obtaining information about the firm's opportunity costs
B) obtaining information about the firm's sunk costs
C) obtaining information about the firm's equipment downtime and product quality
D) obtaining information about customer satisfaction and market share

Answer 1

C

Question 2

Of the four perspectives of the balanced scorecard the customer perspective refers to employee satisfaction,absenteeism,information systems capabilities,and number of processes with real-time feedback.

Answer 2

False

Question 3

Which of the following is true of goal congruence?

A) It exists when the management's strategy is in line with the shareholders' requirements.
B) It exists when individuals and groups work toward achieving the organization's goals.
C) It exists when both internal and external stakeholders of an organization have similar goals.
D) It exists when an organization's goals are in line with the social acceptability of organizational goals.

Answer 3

B

Question 4

Which of the following is a part of the formal management control system?

A) mutual commitments among the members of the organization
B) the quality system which provides information about defective products
C) shared values and loyalties among the members of the organization
D) general understanding about acceptable behavior for managers

Question 5

Management control systems is designed only for top level managers and is not applicable to line managers.

Question 6

Effective management control systems should also motivate managers and other employees.

Question 7

If an oil refinery used refinery down-time as a Balanced Scorecard control measure,it would represent the ________ perspective.

A) financial
B) customer
C) internal business process
D) learning and growth

Question 8

The formal management control system includes shared values,loyalties,and mutual commitments among members of the company,company culture,and norms about acceptable behavior for managers and other employees.

Question 9

Which of the following is a characteristic of a management control system?

A) It aids and coordinates the process of making decisions.
B) It encourages short-term profitability and maximizing net income.
C) It helps individuals throughout the organization to act independently and maximize the profitability of their departments.
D) It deals with coordinating planning across the organization and is not concerned with behavioral aspects of management like employee motivation.

Question 10

If a computer manufacturer used its common stock price as a Balanced Scorecard control measure,it would represent the ________ perspective.

A) financial
B) customer
C) internal business process
D) learning and growth

Question 11

The formal management control system includes the shared values,loyalties,and mutual commitments among members of the organization.

Question 12

The management accounting system is an informal management control system which provide information about the firm's costs,revenues,and income.

Question 13

Effort in terms of management control systems is defined in terms of physical exertion such as a worker producing at a faster rate.

Question 14

A well-designed management control system uses information from ________.

A) internal sources only as they are the most reliable sources of information
B) external sources only as they are more dynamic and future oriented
C) both internal and external sources as a wide range of information is required
D) external sources only as they are the most reliable sources of information

Question 15

The human resources systems is a part of the formal management control systems of an organization.

Question 16

Goal congruence exists when individuals work toward achieving one goal,and groups work toward achieving a different goal.

Question 17

Management control systems should be designed to support the organizational responsibilities of individual managers.

Question 18

________,in the perspective of an effective management control,is the extent to which managers strive or endeavor in order to achieve a goal.

A) Efficiency
B) Effectiveness
C) Effort
D) Variance

Question 19

Effort refers to physical exertion,such as a worker producing at a faster rate,but excludes non-physical aspects like acumen and diligence of a worker.

Question 20

An organization should design its management control system independently of its strategies,so that the system is not affected by change of strategies in future.

Question 21

Which of the following is a drawback of decentralizing a multinational company?

A) It may lead to increased exchange rate risk.
B) It may result in lack of control and results in increasing risk.
C) It creates less responsiveness to the needs of a subunit's customers, suppliers, and employees.
D) It may lead to an increase in bureaucracy.

Question 22

In a profit center,the manager is accountable for investments,revenues,and costs.

Question 23

________ means minimum constraints and maximum freedom for managers at the lowest levels of an organization to make decisions and to take actions.

A) Total centralization
B) Use of market-based transfer pricing
C) Total decentralization
D) Use of negotiated transfer pricing

Question 24

An advantage of decentralization is that it ________.

A) creates greater responsiveness to local needs
B) focuses manager's attention on the organization as a whole
C) does not result in a duplication of activities
D) reduces the cost of gathering information

Question 25

For each of the following Balanced Scorecard measures,identify which of the four perspectives (Financial,Customer,Internal Business Process,or Learning and Growth)the measure best represents.

Question 26

An investment center is always a decentralized subunit.

Question 27

________ occurs when a decision's benefits for one subunit is more than offset by the costs to the organization as a whole.

A) Suboptimal decision making
B) Independent decision making
C) Congruent decision making
D) Departmental decision making

Question 28

For each of the following activities,characteristics,and applications,identify whether they can be found in a centralized organization,a decentralized organization,or both types of organizations.

Question 29

Decentralization in multinational companies may lead to lack of control.

Question 30

Which of the following is a responsibility center to measure the revenues and costs of subunits in centralized or decentralized companies?

A) investment center
B) environmental center
C) exchange policy center
D) taxation rebate center

Question 31

Which of the following is an advantage of decentralization?

A) It creates greater responsiveness to local needs.
B) It focuses managers' attention on the organization as a whole.
C) It does not result in a duplication of activities.
D) It encourages suboptimal decision making.

Question 32

Incongruent decision making occurs when individuals and groups work toward achieving the organization's goals even if departmental performance is adversely affected.

Question 33

What is goal congruence?

Question 34

Which of the following statements is true of decentralization?

A) A decentralized structure does not empower employees to handle customer complaints directly.
B) A decentralized structure forces top management to lose some control over the organization.
C) Decentralization slows responsiveness to local needs for decision making.
D) A decentralized structure only delegate recurring and structured decisions to lower levels.

Question 35

Which of the following is a benefit of decentralization?

A) It creates greater responsiveness to local needs.
B) It helps in rasing capital at a local level.
C) It relieves top managers of accountability.
D) It eliminates the need for enforcing goal congruence among the departments.

Question 36

"Management control systems consist of formal and informal control systems." Briefly explain the formal and informal management systems and enlist their components.

Question 37

Decisions regarding sources of long-term financing are best made at subunit level as the subunit has local knowledge and can leverage it in negotiations.

Question 38

The labels profit center and cost center are dependent on the degree of centralization or decentralization in a company.

Question 39

Surveys indicate that decisions made most frequently at the corporate level are related to sources of supplies and products to manufacture.

Question 40

Which of the following areas lends themselves to the concept of decentralization?

A) dividend decisions
B) long-term financing
C) product advertising
D) strategic planning

Question 41

Which of the following best describes a transfer price?

A) It is the price charged by an organization when it transfer goods to another organization in lieu of services provided by it.
B) It is the price that is to be used while calculating revenue from sales to customers for tax purposes.
C) It is the price that is charged by a department of an organization when it sells its goods to its competitors.
D) It is the price one subunit charges for a product or service supplied to another subunit of the same organization.

Question 42

Transfer-pricing systems enable managers to focus on maximizing the performance of their subunits.

Question 43

The product or service transferred between subunits of an organization is called an intermediate product.

Question 44

Answer the following questions using the information below:
Axelia Corporation has two divisions, Refining and Extraction. The company's primary product is Luboil Oil. Each division's costs are provided below:
$$\begin{array} { l c c } \text { Extraction: } & \text { Variable costs per barrel of oil } & \$ 7 \\& \text { Fixed costs per barrel of oil } & \$ 5 \\\text { Refining: } & \text { Variable costs per barrel of oil } & \$ 28 \\& \text { Fixed costs per barrel of oil } & \$ 32\end{array}$$ The Refining Division has been operating at a capacity of 40,000 barrels a day and usually purchases 25,000 barrels of oil from the Extraction Division and 15,000 barrels from other suppliers at $60 per barrel.

-What is the transfer price per barrel from the Extraction Division to the Refining Division,assuming the method used to place a value on each barrel of oil is 180% of variable costs?

A) $12.60
B) $21.60
C) $72.00
D) $130.00

Question 45

What is decentralization and what are its benefits?

Question 46

Negotiated transfer prices are often employed when ________.

A) market prices are stable
B) market prices are volatile
C) market prices change by a regular percentage each year
D) goal congruence is not a major objective

Question 47

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.

-What is the transfer price per watch from the Manufacturing Division to the Distribution Division,assuming the method used to place a value on each pound of fertilizer is 160% of variable costs?

A) $1.00
B) $1.60
C) $2.20
D) $8.00

Question 48

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.

-What is the transfer price per watch from the Manufacturing Division to the Distribution Division,assuming the method used to place a value on each transfer is 120% of full costs?

A) $6.00
B) $7.20
C) $9.00
D) $11.00

Question 49

Answer the following questions using the information below:
Axelia Corporation has two divisions, Refining and Extraction. The company's primary product is Luboil Oil. Each division's costs are provided below:
$$\begin{array} { l c c } \text { Extraction: } & \text { Variable costs per barrel of oil } & \$ 7 \\& \text { Fixed costs per barrel of oil } & \$ 5 \\\text { Refining: } & \text { Variable costs per barrel of oil } & \$ 28 \\& \text { Fixed costs per barrel of oil } & \$ 32\end{array}$$ The Refining Division has been operating at a capacity of 40,000 barrels a day and usually purchases 25,000 barrels of oil from the Extraction Division and 15,000 barrels from other suppliers at $60 per barrel.

-Assume 200 barrels are transferred from the Extraction Division to the Refining Division for a transfer price of $18 per barrel.The Refining Division sells the 200 barrels at a price of $120 each to customers.What is the operating income of both divisions together?

A) $7,200
B) $9,600
C) $10,800
D) $20,400

Question 50

What are transfer prices and what are its criteria?

Question 51

Answer the following questions using the information below:
Axelia Corporation has two divisions, Refining and Extraction. The company's primary product is Luboil Oil. Each division's costs are provided below:
$$\begin{array} { l c c } \text { Extraction: } & \text { Variable costs per barrel of oil } & \$ 7 \\& \text { Fixed costs per barrel of oil } & \$ 5 \\\text { Refining: } & \text { Variable costs per barrel of oil } & \$ 28 \\& \text { Fixed costs per barrel of oil } & \$ 32\end{array}$$ The Refining Division has been operating at a capacity of 40,000 barrels a day and usually purchases 25,000 barrels of oil from the Extraction Division and 15,000 barrels from other suppliers at $60 per barrel.

-What is the transfer price per barrel from the Extraction Division to the Refining Division,assuming the method used to place a value on each barrel of oil is 110% of full costs?

A) $12.00
B) $13.20
C) $44.00
D) $79.00

Question 52

Which of the following is true of hybrid transfer prices?

A) The cost used in hybrid transfer prices is always the actual cost.
B) The cost used in hybrid transfer prices is always the budgeted cost.
C) They take into account both cost and market information.
D) They are less popular in manufacturing industry.

Question 53

The transfer price creates revenues for the selling subunit and costs for the buying subunit affecting each subunit's operating income.

Question 54

To reduce the excessive focus of subunit managers on their own subunits,many companies compensate subunit managers on the basis of ________.

A) both the operating income earned by their respective subunits and the company as a whole
B) both the investing income earned by their respective subunits and the company as a whole
C) only the investing income earned by their respective subunits
D) both the net income and earned by their respective subunits and the company as a whole

Question 55

Why is decentralization costly?

Question 56

The president of Silicon Company has just returned from a week of professional development courses and is very excited that she will not have to change the organization from a centralized structure to a decentralized structure just to have responsibility centers.However,she is somewhat confused about how responsibility centers relate to centralized organizations where a few managers have most of the authority.
Required:
Explain how a centralized organization might allow for responsibility centers.

Question 57

The costs used in cost-based transfer prices ________.

A) are actual costs
B) are budgeted costs
C) can either be actual or budgeted costs
D) are lower than the market-based transfer prices

Question 58

A product may be passed from one subunit to another subunit in the same organization.The product is known as a(n)________.

A) interdepartmental product
B) intermediate product
C) subunit product
D) transfer product

Question 59

A transfer-pricing method leads to goal congruence when ________.

A) there is a price difference in different markets due to market inefficiencies
B) managers do no act for their own best interest and work for the long-term best interest of the manager's subunit
C) managers act in their own best interest and the decision is in the long-term best interest of the company
D) there is a low degree of centralization

Question 60

Which of the following is true of transfer pricing?

A) It creates costs for the selling subunit.
B) It creates revenues for the buying subunit.
C) It helps top managers evaluate the performance of individual subunits.
D) It makes managers' information-processing and decision-making tasks difficult.

Question 61

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

Question 62

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

Question 63

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

Question 64

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.

Question 65

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

Question 66

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

Question 67

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

Question 68

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

Question 69

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

Question 70

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

Question 71

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

Question 72

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

Question 73

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

Question 74

Hybrid transfer prices can be arrived at through negotiations.

Question 75

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

Question 76

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

Question 77

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

Question 78

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

Question 79

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

Question 80

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.