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Fundamentals of Cost Accounting Study Set 3
Quiz 15: Transfer Pricing
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Question 21
Multiple Choice
You have been provided with the following information for Division X of a decentralized company:
Selling price
$
90
Variable cost per unit
66
Fixed cost per unit
20
Sales volume (units)
22
,
500
Capacity (units)
25
,
000
\begin{array} { l r } \text { Selling price } & \$ 90\\\text { Variable cost per unit } & 66 \\\text { Fixed cost per unit } & 20 \\\text { Sales volume (units) } & 22,500 \\\text { Capacity (units) } & 25,000\end{array}
Selling price
Variable cost per unit
Fixed cost per unit
Sales volume (units)
Capacity (units)
$90
66
20
22
,
500
25
,
000
Division Y of the same company would like to purchase all of its units internally. Division Y needs 6,000 units each period and currently pays $84 per unit to an outside firm. What is the lowest price that Division X could accept from Division Y? (Assume that Division Y wants to use a sole supplier and will not purchase less than 6,000 from a supplier.)
Question 22
Multiple Choice
Dockside Enterprises Incorporated operates two divisions: (1) a management division that owns and manages bulk carriers on the Great Lakes and (2) a repair division that operates a dry dock in Tampa, Florida. The repair division works on company ships and outside large-hull ships. The repair division has an estimated variable cost of $37 per labor-hour, has a backlog of work for outside ships, and charges $70.00 per hour for labor, which is standard for this type of work. The management division complained that it could hire its own repair workers for $45.00 per hour, including leasing an adequate work area. - If the repair division had idle capacity, what is the minimum transfer price that the repair division should obtain?
Question 23
Multiple Choice
Transfer prices are used for all of the following except:
Question 24
Multiple Choice
The Wheel Division of Frankov Corporation has the capacity for making 75,000 wheel sets per year and regularly sells 60,000 each year on the outside market. The regular sales price is $100 per wheel set, and the variable production cost per unit is $65. The Retail Division of Frankov Corporation currently buys 30,000 wheel sets (of the kind made by the Wheel Division) yearly from an outside supplier at a price of $90 per wheel set. If the Retail Division were to buy the 30,000 wheel sets it needs annually from the Wheel Division at a transfer price of $87 per wheel set, the change in annual net operating income for the company as a whole would be:
Question 25
Multiple Choice
Part 43X costs the Southern Division of Norris Corporation $26 to produce. Making up that cost are direct materials of $10, direct labor of $4, variable manufacturing overhead of $9, and fixed manufacturing overhead of $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?
Question 26
Multiple Choice
Division A has variable manufacturing costs of $50 per unit and fixed costs of $10 per unit. Assuming that Division A is operating at capacity, what is the opportunity cost of an internal transfer when the market price is $75?
Question 27
Multiple Choice
Division A has variable manufacturing costs of $50 per unit and fixed costs of $10 per unit. Assuming that Division A is operating at capacity, what is the optimal transfer price of an internal transfer when the market price is $75?