Question 1

The transfer price used for internal transfers between divisions of the same company cannot affect the divisions' reported profits.

Accepted Answer

A) True 
 B)False

Question 2

Gauani Products,Inc.,has a Detector Division that manufactures and sells a number of products,including a standard detector.Data concerning that detector appear below:
   The company has a Commercial Security Division that could use this detector in one of its products.The Commercial Security Division is currently purchasing 5,000 of these detectors per year from an overseas supplier at a cost of $65 per detector.
Required:
a.Assume that the Detector Division has enough idle capacity to handle all of the Commercial Security Division's needs.What is the acceptable range,if any,for the transfer price between the two divisions?
b.Assume that the Detector Division is selling all of the detectors it can produce to outside customers.What is the acceptable range,if any,for the transfer price between the two divisions?

Accepted Answer

a.From the perspective of the selling di

Question 3

The Southern Division of Barstol Company makes and sells a single product,which is a part used in manufacturing trucks.The annual production capacity is 12,000 units and the variable cost of each unit is $35.Presently the Southern Division sells 11,000 units per year to outside customers at $49 per unit.The Northern Division of Barstol Company would like to buy 4,000 units a year from Southern to use in its production.There would be no savings in variable costs from transferring the units internally rather than selling them externally.The lowest acceptable transfer price from the standpoint of the Southern Division should be closest to:

Accepted Answer

A)  $45.50 per unit 
B)  $35.00 per unit 
C)  $32.00 per unit 
D)  $49.00 per unit 
A)  $45.50 per unit 
B)  $35.00 per unit 
C)  $32.00 per unit 
D)  $49.00 per unit

Question 4

(Appendix 11A) Division A makes a part with the following characteristics:
   Division B, another division of the same company, would like to purchase 5,000 units of the part each period from Division A. Division B is now purchasing these parts from an outside supplier at a price of $24 each.
-Suppose that Division A has ample idle capacity to handle all of Division B's needs without any increase in fixed costs and without cutting into sales to outside customers.If Division A refuses to accept the $24 price internally and Division B continues to buy from the outside supplier,the company as a whole will be:

Accepted Answer

A)  worse off by $30,000 each period. 
B)  worse off by $10,000 each period. 
C)  better off by $15,000 each period. 
D)  worse off by $35,000 each period. 
A)  worse off by $30,000 each period. 
B)  worse off by $10,000 each period. 
C)  better off by $15,000 each period. 
D)  worse off by $35,000 each period.

Question 5

(Appendix 11A) Fregozo Products, Inc., has a Connector Division that manufactures and sells a number of products, including a standard connector that could be used by another division in the company, the Transmission Division, in one of its products. Data concerning that connector appear below:
   The Transmission Division is currently purchasing 8,000 of these connectors per year from an overseas supplier at a cost of $45 per connector.
-Assume that the Connector Division is selling all of the connectors it can produce to outside customers.What should be the minimum acceptable transfer price for the connectors from the standpoint of the Connector Division?

Accepted Answer

A)  $54 per unit 
B)  $45 per unit 
C)  $41 per unit 
D)  $20 per unit 
A)  $54 per unit 
B)  $45 per unit 
C)  $41 per unit 
D)  $20 per unit

Question 6

(Appendix 11A) Brull Products, Inc., has a Sensor Division that manufactures and sells a number of products, including a standard sensor. Data concerning that sensor appear below:
   The Safety Products Division of Brull Products, Inc needs 6,000 special heavy-duty sensors per year. The Sensor Division's variable cost to manufacture and ship this special sensor would be $60 per unit. Because these special sensors would requires more manufacturing resources than the standard sensor, the Sensor Division would have to reduce its production and sales of standard sensors to outside customers from 56,000 units per year to 46,400 units per year.
-From the standpoint of the Sensor Division,what is the minimal acceptable transfer price for the special sensors for the Safety Products Division?

Accepted Answer

A)  $75.00 per unit 
B)  $77.00 per unit 
C)  $83.00 per unit 
D)  $96.80 per unit 
A)  $75.00 per unit 
B)  $77.00 per unit 
C)  $83.00 per unit 
D)  $96.80 per unit

Question 7

(Appendix 11A) Fingado Products, Inc., has a Detector Division that manufactures and sells a number of products, including a standard detector that could be used by another division in the company, the Commercial Security Division, in one of its products. Data concerning that detector appear below:
   The Commercial Security Division is currently purchasing 6,000 of these detectors per year from an overseas supplier at a cost of $91 per detector.
-Assume that the Valve Division is selling all of the valves it can produce to outside customers.Also assume that $6 in variable expenses can be avoided on transfers within the company due to reduced shipping and selling costs.What should be the minimum acceptable transfer price for the valves from the standpoint of the Valve Division?

Accepted Answer

A)  $92 per unit 
B)  $77 per unit 
C)  $91 per unit 
D)  $98 per unit 
A)  $92 per unit 
B)  $77 per unit 
C)  $91 per unit 
D)  $98 per unit

Question 8

Prejean Products,Inc.,has a Relay Division that manufactures and sells a number of products,including a standard relay.Data concerning that relay appear below:
   The company has a Electronics Division that could use this relay in one of its products.The Electronics Division is currently purchasing 9,000 of these relays per year from an overseas supplier at a cost of $74 per relay.
Required:
a.Assume that the Relay Division has enough idle capacity to handle all of the Electronics Division's needs.What is the acceptable range,if any,for the transfer price between the two divisions?
b.Assume that the Relay Division is selling all of the relays it can produce to outside customers.Also assume that $13 in variable expenses can be avoided on transfers within the company due to reduced shipping and selling costs.What is the acceptable range,if any,for the transfer price between the two divisions?

Accepted Answer

a.From the perspective of the selling di

Question 9

(Appendix 11A) Germano Products, Inc., has a Pump Division that manufactures and sells a number of products, including a standard pump that could be used by another division in the company, the Pool Products Division, in one of its products. Data concerning that pump appear below:
   The Pool Products Division is currently purchasing 10,000 of these pumps per year from an overseas supplier at a cost of $94 per pump.
-Assume that the Pump Division has enough idle capacity to handle all of the Pool Products Division's needs.Does there exist a transfer price that would make both the Pump and Pool Products Division financially better off than if the Pool Products Division were to continue buying its pumps from the outside supplier?

Accepted Answer

A)  Yes, both divisions are always better off regardless of whether the selling division has enough idle capacity to handle all of the buying division's needs. 
B)  Yes, the minimum transfer price that the selling division should be willing to accept is less than the maximum transfer price that the buying division would accept. 
C)  The answer cannot be determined from the information that has been provided. 
D)  No, the selling division's price to outside customers is higher than the price that the buying division has to pay its outside supplier. 
A)  Yes, both divisions are always better off regardless of whether the selling division has enough idle capacity to handle all of the buying division's needs. 
B)  Yes, the minimum transfer price that the selling division should be willing to accept is less than the maximum transfer price that the buying division would accept. 
C)  The answer cannot be determined from the information that has been provided. 
D)  No, the selling division's price to outside customers is higher than the price that the buying division has to pay its outside supplier.

Question 10

(Appendix 11A) Steinhoff Products, Inc., has a Sensor Division that manufactures and sells a number of products, including a standard sensor that could be used by another division in the company, the Safety Products Division, in one of its products. Data concerning that sensor appear below:
   The Safety Products Division is currently purchasing 4,000 of these sensors per year from an overseas supplier at a cost of $48 per sensor.
-What is the maximum price that the Safety Products Division should be willing to pay for sensors transferred from the Sensor Division?

Accepted Answer

A)  $51 per unit 
B)  $37 per unit 
C)  $48 per unit 
D)  $14 per unit 
A)  $51 per unit 
B)  $37 per unit 
C)  $48 per unit 
D)  $14 per unit

Question 11

(Appendix 11A) Bacot Products, Inc., has a Valve Division that manufactures and sells a number of products, including a standard valve that could be used by another division in the company, the Pump Division, in one of its products. Data concerning that valve appear below:
   The Pump Division is currently purchasing 8,000 of these valves per year from an overseas supplier at a cost of $47 per valve.
-Assume that the Valve Division is selling all of the valves it can produce to outside customers.What should be the minimum acceptable transfer price for the valves from the standpoint of the Valve Division?

Accepted Answer

A)  $47 per unit 
B)  $28 per unit 
C)  $45 per unit 
D)  $53 per unit 
A)  $47 per unit 
B)  $28 per unit 
C)  $45 per unit 
D)  $53 per unit

Question 12

Wamsley Products,Inc.,has a Transmitter Division that manufactures and sells a number of products,including a standard transmitter that could be used by another division in the company,the Remote Devices Division,in one of its products.Data concerning that transmitter appear below:
  The Remote Devices Division is currently purchasing 8,000 of these transmitters per year from an overseas supplier at a cost of $61 per transmitter.
Assume that the Transmitter Division is selling all of the transmitters it can produce to outside customers.What should be the minimum acceptable transfer price for the transmitters from the standpoint of the Transmitter Division?

Accepted Answer

A)  $44 per unit 
B)  $27 per unit 
C)  $64 per unit 
D)  $61 per unit 
A)  $44 per unit 
B)  $27 per unit 
C)  $64 per unit 
D)  $61 per unit

Question 13

Ricardo Products,Inc.,has a Motor Division that manufactures and sells a number of products,including a standard motor.Data concerning that motor appear below:
  The Automotive Division of Ricardo Products,Inc needs 10,000 special heavy-duty motors per year.The Motor Division's variable cost to manufacture and ship this special motor would be $35 per unit.Because these special motors would requires more manufacturing resources than the standard motor,the Motor Division would have to reduce its production and sales of standard motors to outside customers from 87,000 units per year to 69,000 units per year.
What is the total contribution margin on sales to outside customers that the Motor Division would give up if it were to make the special motors for the Automotive Division?

Accepted Answer

A)  $486,000 
B)  $874,800 
C)  $1,026,000 
D)  $270,000 
A)  $486,000 
B)  $874,800 
C)  $1,026,000 
D)  $270,000

Question 14

(Appendix 11A) Ganus Products, Inc., has a Relay Division that manufactures and sells a number of products, including a standard relay that could be used by another division in the company, the Electronics Division, in one of its products. Data concerning that relay appear below:
   The Electronics Division is currently purchasing 7,000 of these relays per year from an overseas supplier at a cost of $59 per relay.
-Assume that the Relay Division is selling all of the relays it can produce to outside customers.Does there exist a transfer price that would make both the Relay and Electronics Division financially better off than if the Electronics Division were to continue buying its relays from the outside supplier?

Accepted Answer

A)  Yes, the minimum transfer price that the selling division should be willing to accept is less than the maximum transfer price that the buying division should be willing to accept. 
B)  No, the minimum transfer price that the selling division should be willing to accept exceeds the maximum transfer price that the buying division should be willing to accept. 
C)  Yes, both divisions are always better off regardless of whether the selling division has enough idle capacity to handle all of the buying division's needs. 
D)  The answer cannot be determined from the information that has been provided. 
A)  Yes, the minimum transfer price that the selling division should be willing to accept is less than the maximum transfer price that the buying division should be willing to accept. 
B)  No, the minimum transfer price that the selling division should be willing to accept exceeds the maximum transfer price that the buying division should be willing to accept. 
C)  Yes, both divisions are always better off regardless of whether the selling division has enough idle capacity to handle all of the buying division's needs. 
D)  The answer cannot be determined from the information that has been provided.

Question 15

(Appendix 11A) Yearout Products, Inc., has a Valve Division that manufactures and sells a number of products, including a standard valve that could be used by another division in the company, the Pump Division, in one of its products. Data concerning that valve appear below:
   The Pump Division is currently purchasing 9,000 of these valves per year from an overseas supplier at a cost of $53 per valve.
-Assume that the Valve Division is selling all of the valves it can produce to outside customers.Also assume that $1 in variable expenses can be avoided on transfers within the company due to reduced shipping and selling costs.Does there exist a transfer price that would make both the Valve and Pump Division financially better off than if the Pump Division were to continue buying its valves from the outside supplier?

Accepted Answer

A)  Yes, the minimum transfer price that the selling division should be willing to accept is less than the maximum transfer price that the buying division would accept. 
B)  The answer cannot be determined from the information that has been provided. 
C)  No, the minimum transfer price that the selling division should be willing to accept exceeds the maximum transfer price that the buying division would accept. 
D)  Yes, both divisions are always better off regardless of whether the selling division has enough idle capacity to handle all of the buying division's needs. 
A)  Yes, the minimum transfer price that the selling division should be willing to accept is less than the maximum transfer price that the buying division would accept. 
B)  The answer cannot be determined from the information that has been provided. 
C)  No, the minimum transfer price that the selling division should be willing to accept exceeds the maximum transfer price that the buying division would accept. 
D)  Yes, both divisions are always better off regardless of whether the selling division has enough idle capacity to handle all of the buying division's needs.

Question 16

(Appendix 11A) Division A of Tripper Company produces a part that it sells to other companies. Sales and cost data for the part follow:
   Division B, another division of Tripper Company, would like to buy this part from Division A. Division B is presently purchasing the part from an outside source at $38 per unit. If Division A sells to Division B, $1 in variable costs can be avoided.
-Assume that Division A is presently operating at capacity.According to the formula in the text,what is the lowest acceptable transfer price from the viewpoint of the selling division?

Accepted Answer

A)  $37 per unit 
B)  $39 per unit 
C)  $36 per unit 
D)  $38 per unit 
A)  $37 per unit 
B)  $39 per unit 
C)  $36 per unit 
D)  $38 per unit

Question 17

(Appendix 11A) Brull Products, Inc., has a Sensor Division that manufactures and sells a number of products, including a standard sensor. Data concerning that sensor appear below:
   The Safety Products Division of Brull Products, Inc needs 6,000 special heavy-duty sensors per year. The Sensor Division's variable cost to manufacture and ship this special sensor would be $60 per unit. Because these special sensors would requires more manufacturing resources than the standard sensor, the Sensor Division would have to reduce its production and sales of standard sensors to outside customers from 56,000 units per year to 46,400 units per year.
-What is the total contribution margin on sales to outside customers that the Sensor Division would give up if it were to make the special sensors for the Safety Products Division?

Accepted Answer

A)  $720,000 
B)  $353,280 
C)  $220,800 
D)  $138,000 
A)  $720,000 
B)  $353,280 
C)  $220,800 
D)  $138,000

Question 18

Division G makes a part that it sells to customers outside of the company.Data concerning this part appear below:
  Division H of the same company would like to use the part manufactured by Division G in one of its products.Division H currently purchases a similar part made by an outside company for $83 per unit and would substitute the part made by Division G.Division H requires 500 units of the part each period.Division G has ample capacity to produce the units for Division H without any increase in fixed costs and without cutting into sales to outside customers.If Division G sells to Division H rather than to outside customers,the variable cost be unit would be $2 lower.What should be the lowest acceptable transfer price from the perspective of Division G?

Accepted Answer

A)  $47 
B)  $87 
C)  $83 
D)  $57 
A)  $47 
B)  $87 
C)  $83 
D)  $57

Question 19

(Appendix 11A) Royal Products, Inc., has a Connector Division that manufactures and sells a number of products, including a standard connector that could be used by another division in the company, the Transmission Division, in one of its products. Data concerning that connector appear below:
   The Transmission Division is currently purchasing 6,000 of these connectors per year from an overseas supplier at a cost of $65 per connector.
-Assume that the Connector Division is selling all of the connectors it can produce to outside customers.What should be the minimum acceptable transfer price for the connectors from the standpoint of the Connector Division?

Accepted Answer

A)  $56 per unit 
B)  $65 per unit 
C)  $69 per unit 
D)  $21 per unit 
A)  $56 per unit 
B)  $65 per unit 
C)  $69 per unit 
D)  $21 per unit

Question 20

Cominsky Products,Inc.,has a Screen Division that manufactures and sells a number of products,including a standard screen.Data concerning that screen appear below:
   The company has a Home Security Division that could use this screen in one of its products.The Home Security Division is currently purchasing 6,000 of these screens per year from an overseas supplier at a cost of $96 per screen.
Required:
Assume that the Screen Division is selling all of the screens it can produce to outside customers.What is the acceptable range,if any,for the transfer price between the two divisions?

Accepted Answer

The total contribution margin on lost sa

The transfer price used for internal transfers between divisions of the same company cannot affect the divisions' reported profits.

Managerial Accounting and Cost Concepts

Job-Order Costing: Calculating Unit Production Costs

Job-Order Costing: Cost Flows and External Reporting

Process Costing

Cost-Volume-Profit Relationships

Variable Costing and Segment Reporting: Tools for Management

Super-Variable Costing

Master Budgeting

Flexible Budgets and Performance Analysis

Standard Costs and Variances

Performance Measurement in Decentralized Organizations

Differential Analysis: The Key to Decision Making

Capital Budgeting Decisions

Statement of Cash Flows

Financial Statement Analysis

Cost of Quality

Activity-Based Absorption Costing

The Predetermined Overhead Rate and Capacity

Job-Order Costing: a Microsoft Excel-Based Approach

Fifo Method

Service Department Allocations

Analyzing Mixed Costs

Time-Driven Activity-Based Costing: a Microsoft Excel-Based Approach

Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System

Standard Cost Systems: a Financial Reporting Perspective Using Microsoft Excel

Service Department Charges

Pricing Decisions

The Concept of Present Value

Income Taxes and the Present Value Method

the Direct Method of Determining the Net Cash Provided by Operating Activities

Filters

Exam 26: Transfer Pricing

The transfer price used for internal transfers between divisions of the same company cannot affect the divisions' reported profits.

Managerial Accounting and Cost Concepts

Job-Order Costing: Calculating Unit Production Costs

Job-Order Costing: Cost Flows and External Reporting

Process Costing

Cost-Volume-Profit Relationships

Variable Costing and Segment Reporting: Tools for Management

Super-Variable Costing

Master Budgeting

Flexible Budgets and Performance Analysis

Standard Costs and Variances

Performance Measurement in Decentralized Organizations

Differential Analysis: The Key to Decision Making

Capital Budgeting Decisions

Statement of Cash Flows

Financial Statement Analysis

Cost of Quality

Activity-Based Absorption Costing

The Predetermined Overhead Rate and Capacity

Job-Order Costing: a Microsoft Excel-Based Approach

Fifo Method

Service Department Allocations

Analyzing Mixed Costs

Time-Driven Activity-Based Costing: a Microsoft Excel-Based Approach

Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System

Standard Cost Systems: a Financial Reporting Perspective Using Microsoft Excel

Service Department Charges

Pricing Decisions

The Concept of Present Value

Income Taxes and the Present Value Method

the Direct Method of Determining the Net Cash Provided by Operating Activities

Filters