Question 1

If a cost-based transfer price is used, the transfer price must be based on variable cost.

Accepted Answer

A) True 
 B)False

Question 2

The Dairy Division of Famous Foods, Inc.produces and sells milk to outside customers.The operation has the capacity to produce 200,000 gallons of milk a year.Last year's operating results were as follows: $$\begin{array} { l r } 
\text { Sales } ( 160,000 ) \text { gallons } & \$ 500,000 \
\text { Variable costs } & 312,000 \
\text { Contribution margin } & 188,000 \
\text { Fixed costs } & 100,000 \
\text { Net Income } & \$ 88,000
\end{array}$$
- Assume the Dairy Division is operating at capacity.If the Yogurt Division wants to purchase 30,000 gallons of milk from the Dairy Division, what is the minimum price that will allow the Dairy Division to maintain its current net income?

Accepted Answer

A) $3.13 per gallon 
B) $1.18 per gallon 
C) $1.95 per gallon 
D) $0.55 per gallon 
A) $3.13 per gallon 
B) $1.18 per gallon 
C) $1.95 per gallon 
D) $0.55 per gallon

Question 3

In most cases, prices are set by the

Accepted Answer

A) customers. 
B) competitive market. 
C) largest competitor. 
D) selling company. 
A) customers. 
B) competitive market. 
C) largest competitor. 
D) selling company.

Question 4

There are two approaches for determining a transfer price: cost-based and market-based.

Accepted Answer

A) True 
 B)False

Question 5

Target cost is comprised of

Accepted Answer

A) variable and fixed manufacturing costs only. 
B) variable manufacturing and selling and administrative costs only. 
C) total manufacturing and selling and administrative costs. 
D) fixed manufacturing and selling and administrative costs only. 
A) variable and fixed manufacturing costs only. 
B) variable manufacturing and selling and administrative costs only. 
C) total manufacturing and selling and administrative costs. 
D) fixed manufacturing and selling and administrative costs only.

Question 6

Negotiated transfer pricing is not always used because of each of the following reasons except that

Accepted Answer

A) market price information is sometimes not easily obtainable. 
B) a lack of trust between the negotiating divisions may lead to a breakdown in the negotiations. 
C) negotiations often lead to different pricing strategies from division to division. 
D) opportunity cost is sometimes not determinable. 
A) market price information is sometimes not easily obtainable. 
B) a lack of trust between the negotiating divisions may lead to a breakdown in the negotiations. 
C) negotiations often lead to different pricing strategies from division to division. 
D) opportunity cost is sometimes not determinable.

Question 7

All of the following are correct statements about the cost-based transfer price approach except that it

Accepted Answer

A) can understate the actual contribution to profit by the selling division. 
B) can reduce a division manager's control over the division's performance. 
C) bases the transfer price on standard cost instead of actual cost. 
D) provides incentive for the selling division to control costs. 
A) can understate the actual contribution to profit by the selling division. 
B) can reduce a division manager's control over the division's performance. 
C) bases the transfer price on standard cost instead of actual cost. 
D) provides incentive for the selling division to control costs.

Question 8

The Wood Division of Fir Products, Inc.manufactures rubber moldings and sells them externally for $55.Its variable cost is $25 per unit, and its fixed cost per unit is $7.Fir's president wants the Wood Division to transfer 5,000 units to another company division at a price of $32.
-Assuming the Wood Division does not have any available capacity, the minimum transfer price it should accept is

Accepted Answer

A) $7. 
B) $25. 
C) $32. 
D) $55. 
A) $7. 
B) $25. 
C) $32. 
D) $55.

Question 9

A company that is a price taker would most likely use which of the following methods?

Accepted Answer

A) Time-and-material pricing 
B) Target costing 
C) Cost plus pricing, contribution approach 
D) Cost plus pricing, absorption approach 
A) Time-and-material pricing 
B) Target costing 
C) Cost plus pricing, contribution approach 
D) Cost plus pricing, absorption approach

Question 10

Tuttle Motorcycles Inc.manufactures and sells high-priced motorcycles.The Engine Division produces and sells engines to other motorcycle companies and internally to the Production Division.It has been decided that the Engine Division will sell 20,000 units to the Production Division at $1,050 a unit.The Engine Division, currently operating at capacity, has a unit sales price of $2,550 and unit variable costs and fixed costs of $1,050 and $750, respectively.The Production Division is currently paying $2,400 per unit to an outside supplier.$90 per unit can be saved on internal sales from reduced selling expenses.
-What is the minimum transfer price that the Engine Division should accept?

Accepted Answer

A) $2,460 
B) $2,550 
C) $2,400 
D) $1,500 
A) $2,460 
B) $2,550 
C) $2,400 
D) $1,500

Question 11

Which two methods are used most often when establishing a transfer price?

Accepted Answer

A) Negotiated transfer pricing and cost-based transfer pricing 
B) Cost-based transfer pricing and market-based transfer pricing 
C) Negotiated transfer pricing and market-based transfer pricing 
D) Cost-based transfer pricing and standard-based pricing 
A) Negotiated transfer pricing and cost-based transfer pricing 
B) Cost-based transfer pricing and market-based transfer pricing 
C) Negotiated transfer pricing and market-based transfer pricing 
D) Cost-based transfer pricing and standard-based pricing

Question 12

The transfer price approach that will result in the largest contribution margin to the buying division is the

Accepted Answer

A) cost-based approach. 
B) market-based approach. 
C) negotiated price approach. 
D) time-and-material pricing approach. 
A) cost-based approach. 
B) market-based approach. 
C) negotiated price approach. 
D) time-and-material pricing approach.

Question 13

When a sale occurs between divisions of the same company, which transfer pricing approach may lead to the buying division overpricing its product?

Accepted Answer

A) Cost based transfer pricing 
B) Market-based transfer pricing 
C) Negotiated transfer pricing 
D) Cost-plus transfer pricing 
A) Cost based transfer pricing 
B) Market-based transfer pricing 
C) Negotiated transfer pricing 
D) Cost-plus transfer pricing

Question 14

Management of the Catering Company would like the Food Division to transfer 10,000 cans of its final product to the Restaurant Division for $30.The Food Division sells the product to customers for $70 per unit.The Food Division's variable cost per unit is $35 and its fixed cost per unit is $10.
-If the Food Division is currently operating at full capacity, what is the minimum transfer price the Food Division should accept?

Accepted Answer

A) $30 
B) $35 
C) $45 
D) $70 
A) $30 
B) $35 
C) $45 
D) $70

Question 15

Jaycee Auto Repair has the following budgeted costs for the next year: $\begin{array}{lcc}&\text { Time Charges }&\text { Material Charges }\
\text { Shop employees' wages and benefits } & \$ 120,000 & \$- \
\text { Parts manager's salary and benefits } & - & 45,000 \
\text { Office employee's salary and benefits } & 30,000 & 15,000\
\text { Other overhead } & 15,000 & 40,000 \
\text { Invoice cost of parts and materials } & - & 400,000\
\text { Total budgeted costs }&\$165,000&\$500,000
\end{array}$ 
- Jaycee estimates that the repairs to a Cadillac Escalade damaged in an accident will take 45 hours of labor and $3,500 in parts and materials.The total cost of the repairs is

Accepted Answer

A) $5,890. 
B) $7,890. 
C) $5,775. 
D) $7,015. 
A) $5,890. 
B) $7,890. 
C) $5,775. 
D) $7,015.

Question 16

Management of the Catering Company would like the Food Division to transfer 10,000 cans of its final product to the Restaurant Division for $30.The Food Division sells the product to customers for $70 per unit.The Food Division's variable cost per unit is $35 and its fixed cost per unit is $10.
-If the Food Division has 10,000 units available capacity, what is the minimum transfer price the Food Division should accept?

Accepted Answer

A) $30 
B) $35 
C) $45 
D) $70 
A) $30 
B) $35 
C) $45 
D) $70

Question 17

In the minimum transfer price formula, variable cost is defined as the variable cost of

Accepted Answer

A) all units sold, both internally and externally. 
B) units sold externally. 
C) units not sold. 
D) units sold internally. 
A) all units sold, both internally and externally. 
B) units sold externally. 
C) units not sold. 
D) units sold internally.

Question 18

The number of transfers between divisions that are located in different countries has decreased as companies rely more on outsourcing.

Accepted Answer

A) True 
 B)False

Question 19

Brislin Products has a new product going on the market next year.The following data are projections for production and sales: $$\begin{array} { l l } 
\text { Variable costs } & \$ 250,000 \
\text { Fixed costs } & \$ 450,000 \
\text { ROl } & 14 \% \
\text { Investment } & \$ 2,000,000 \
\text { Sales } & 200,000 \text { units }
\end{array}$$
- What is the target selling price per unit?

Accepted Answer

A) $4.90 
B) $3.50 
C) $2.65 
D) $3.65 
A) $4.90 
B) $3.50 
C) $2.65 
D) $3.65

Question 20

Bryson Company has just developed a new product.The following data is available for this product: $$\begin{array} { l r } 
\text { Desired ROl per unit } & \$ 30 \
\text { Fixed cost per unit } & 50 \
\text { Variable cost per unit } & 75 \
\text { Total cost per unit } & 125
\end{array}$$ The target selling price for this product is

Accepted Answer

A) $155. 
B) $125. 
C) $105. 
D) $80. 
A) $155. 
B) $125. 
C) $105. 
D) $80.

If a cost-based transfer price is used, the transfer price must be based on variable cost.

In most cases, prices are set by the

There are two approaches for determining a transfer price: cost-based and market-based.

Target cost is comprised of

Negotiated transfer pricing is not always used because of each of the following reasons except that

All of the following are correct statements about the cost-based transfer price approach except that it

A company that is a price taker would most likely use which of the following methods?

Which two methods are used most often when establishing a transfer price?

The transfer price approach that will result in the largest contribution margin to the buying division is the

When a sale occurs between divisions of the same company, which transfer pricing approach may lead to the buying division overpricing its product?

In the minimum transfer price formula, variable cost is defined as the variable cost of

The number of transfers between divisions that are located in different countries has decreased as companies rely more on outsourcing.

Brislin Products has a new product going on the market next year.The following data are projections for production and sales: Variable costs \ 250,000 Fixed costs \ 450,000 ROl 14\% Investment \ 2,000,000 Sales 200,000 units - What is the target selling price per unit?

Bryson Company has just developed a new product.The following data is available for this product: Desired ROl per unit \ 30 Fixed cost per unit 50 Variable cost per unit 75 Total cost per unit 125 The target selling price for this product is

Introduction to Financial Statements

A Further Look at Financial Statements

The Accounting Information System

Accrual Accounting Concepts

Merchandising Operations and the Multiple-Step Income Statement

Reporting and Analyzing Inventory

Fraud, Internal Control, and Cash

Reporting and Analyzing Long-Lived Assets

Reporting and Analyzing Liabilities

Reporting and Analyzing Stockholders Equity

Statement of Cash Flows

Financial Analysis: the Big Picture

Managerial Accounting

Time Value of Money and Present Value Calculations

Filters

Exam 8: Reporting and Analyzing Receivables

If a cost-based transfer price is used, the transfer price must be based on variable cost.

In most cases, prices are set by the

There are two approaches for determining a transfer price: cost-based and market-based.

Target cost is comprised of

Negotiated transfer pricing is not always used because of each of the following reasons except that

All of the following are correct statements about the cost-based transfer price approach except that it

A company that is a price taker would most likely use which of the following methods?

Which two methods are used most often when establishing a transfer price?

The transfer price approach that will result in the largest contribution margin to the buying division is the

When a sale occurs between divisions of the same company, which transfer pricing approach may lead to the buying division overpricing its product?

In the minimum transfer price formula, variable cost is defined as the variable cost of

The number of transfers between divisions that are located in different countries has decreased as companies rely more on outsourcing.

Brislin Products has a new product going on the market next year.The following data are projections for production and sales: Variable costs \ 250,000 Fixed costs \ 450,000 ROl 14\% Investment \ 2,000,000 Sales 200,000 units - What is the target selling price per unit?

Bryson Company has just developed a new product.The following data is available for this product: Desired ROl per unit \ 30 Fixed cost per unit 50 Variable cost per unit 75 Total cost per unit 125 The target selling price for this product is

Introduction to Financial Statements

A Further Look at Financial Statements

The Accounting Information System

Accrual Accounting Concepts

Merchandising Operations and the Multiple-Step Income Statement

Reporting and Analyzing Inventory

Fraud, Internal Control, and Cash

Reporting and Analyzing Long-Lived Assets

Reporting and Analyzing Liabilities

Reporting and Analyzing Stockholders Equity

Statement of Cash Flows

Financial Analysis: the Big Picture

Managerial Accounting

Time Value of Money and Present Value Calculations

Filters