The state of Illinois has passed a law requiring that every automobile be inspected at least once a year for pollution control. Anfang Enterprises is considering entering into this type of business. After extensive studies, Joseph Anfang has developed the following set of projected annual data on which to make his decision: $\begin{array}{|l|l|} \hline \text { Direct service labor } & \$ 363,000.00 \\ \hline \text { Variable service overhead costs } & 270,000.00 \\ \hline \text { Fixed service overhead costs } & 280,000.00 \\ \hline \text { Marketing expenses } & 120,000.00 \\ \hline \text { General and administrative expenses } & 170,000.00 \\ \hline \text { Minimum profit } & 90,000.00 \\ \hline \text { Cost of assets employed } & 500,000.00 \\ \hline \end{array}$ - Anfang believes that his company will inspect 100,000 automobiles per year. The company earns an average of 18.75 percent return on its assets. The price to be charged for inspecting each automobile using the gross margin pricing method would be calculated as follows:

A) ($1,203,000.00 / 100,000) + [($1,203,000.00 /100,000) ´ ($90,000/$1,203,000.00)] B) ($1,203,000.00 / 100,000) + [($500,000 /100,000) ´ 0.1875] C) ($913,000.00 / 100,000) + {($913,000.00 /100,000) ´ [($90,000 + $290,000) /$913,000.00]} D) None of these A) ($1,203,000.00 / 100,000) + [($1,203,000.00 /100,000) ´ ($90,000/$1,203,000.00)] B) ($1,203,000.00 / 100,000) + [($500,000 /100,000) ´ 0.1875] C) ($913,000.00 / 100,000) + {($913,000.00 /100,000) ´ [($90,000 + $290,000) /$913,000.00]} D) None of these

Richardson, Inc., is in the process of developing a transfer price for the first section of what will eventually be an automatic lawn-cutting device. The housing is made in Department A and is used by Department B in the final assembly operation. Unit costs for the housing are as follows: $\begin{array}{|l|l|} \hline \text { Cost Categories } & \text { Unit Cost } \\ \hline \text { Direct materials } & \$ 8.10 \\ \hline \text { Direct labor } & 7.00 \\ \hline \text { Variable overhead } & 4.50 \\ \hline \text { Fixed overhead } & 4.40 \\ \hline \text { Profitmarkm }(30 \text { percent of cost }) & ?\\ \hline \end{array}$ Department B can purchase the housing from an outside supplier at $29.50 per unit. a. Develop the cost-plus transfer price for the housing. b. What should the transfer price be? Support your answer.

a. b. The transfer price should be negot

Exam 11: Pricing Decisions, Incl Target Costing and Transfer Pricing

Transfer pricing can create problems if a company division can purchase inputs outside of the company at a price lower than the internal transfer price from another division.

(True/False)

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Question 41

Use of market transfer prices

(Multiple Choice)

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Question 42

The state of Illinois has passed a law requiring that every automobile be inspected at least once a year for pollution control. Anfang Enterprises is considering entering into this type of business. After extensive studies, Joseph Anfang has developed the following set of projected annual data on which to make his decision: Direct service labor \ 363,000.00 Variable service overhead costs 270,000.00 Fixed service overhead costs 280,000.00 Marketing expenses 120,000.00 General and administrative expenses 170,000.00 Minimum profit 90,000.00 Cost of assets employed 500,000.00 - Anfang believes that his company will inspect 100,000 automobiles per year. The company earns an average of 18.75 percent return on its assets. The price to be charged for inspecting each automobile using the gross margin pricing method would be calculated as follows:

(Multiple Choice)

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Question 43

An internal issue to be considered when setting a price is

(Multiple Choice)

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Question 44

Economic theory indicates that as you market a product, price reductions will have to be made to sell additional units.

(True/False)

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Question 45

A company should never attempt to increase its market share by reducing prices below cost.

(True/False)

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Question 46

Underlying every pricing decision is the fact that all costs incurred must be recovered in the long run or the company will no longer be in business.

(True/False)

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Question 47

A company that produces standard items for a competitive market should have the same pricing strategies as a company that makes unique items custom-designed for its customers.

(True/False)

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Question 48

The long-term objectives of a company need not include statements concerning pricing policy.

(True/False)

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Question 49

A major advantage of the target costing approach to pricing is that target costing

(Multiple Choice)

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Question 50

Development of a transfer price involves

(Multiple Choice)

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Question 51

Which of the following is not one of the three commonly used methods for determining transfer prices?

(Multiple Choice)

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Question 52

Management of Mountain Berry Industries has just decided to employ a set of transfer prices for intracompany transfers between departments. The objective is to include return on assets as part of the performance evaluation of managers of the various cost centers. Data from the Molding Department for the past six months are as follows: Expected Increases/ Account Total Costs (Decrease) Raw plastic-XYZ \ 190,000 10\% Raw plastic-ABC 305,000 (4) Direct labor - melting 125,000 5 Direct labor -blencbing 138,000 5 Direct labor - shaping 151,000 5 Variable overhead 70,000 3 Fixed overhead 95,000 (2) During the six-month period, 100,000 units were produced. The same number of units are expected to be completed during the next six-month period. The company's markup percentage is 20 percent. a. Compute the estimated total costs for the molding department for the next six months. b. Develop the cost-plus transfer price for this plastic unit. Round answers to nearest two decimal places.

(Essay)

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Question 53

Richardson, Inc., is in the process of developing a transfer price for the first section of what will eventually be an automatic lawn-cutting device. The housing is made in Department A and is used by Department B in the final assembly operation. Unit costs for the housing are as follows: Cost Categories Unit Cost Direct materials \ 8.10 Direct labor 7.00 Variable overhead 4.50 Fixed overhead 4.40 Profitmarkm (30 percent of cost ) ? Department B can purchase the housing from an outside supplier at $29.50 per unit. a. Develop the cost-plus transfer price for the housing. b. What should the transfer price be? Support your answer.

(Essay)

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Question 54

Service-oriented businesses take the same approach to pricing their "product" as product-oriented businesses.

(True/False)

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Question 55

Negotiation between managers is not appropriate in determining an appropriate transfer price.

(True/False)

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Question 56

Target costing identifies a competitive price and then subtracts the desired profit to determine a target cost.

(True/False)

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Question 57

Transfer pricing can influence operating efficiency and profitability.

(True/False)

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Question 58

Division Alpha can purchase a required part from an outside supplier at $35. Division Beta will supply the part at a transfer price of $38.50. Division Alpha's manager should

(Multiple Choice)

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Question 59

Committed costs are engineered into a product or service at the design stage of product development.

(True/False)

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Question 60

Showing 41 - 60 of 141

Transfer pricing can create problems if a company division can purchase inputs outside of the company at a price lower than the internal transfer price from another division.

Use of market transfer prices

An internal issue to be considered when setting a price is

Economic theory indicates that as you market a product, price reductions will have to be made to sell additional units.

A company should never attempt to increase its market share by reducing prices below cost.

Underlying every pricing decision is the fact that all costs incurred must be recovered in the long run or the company will no longer be in business.

A company that produces standard items for a competitive market should have the same pricing strategies as a company that makes unique items custom-designed for its customers.

The long-term objectives of a company need not include statements concerning pricing policy.

A major advantage of the target costing approach to pricing is that target costing

Development of a transfer price involves

Which of the following is not one of the three commonly used methods for determining transfer prices?

Service-oriented businesses take the same approach to pricing their "product" as product-oriented businesses.

Negotiation between managers is not appropriate in determining an appropriate transfer price.

Target costing identifies a competitive price and then subtracts the desired profit to determine a target cost.

Transfer pricing can influence operating efficiency and profitability.

Division Alpha can purchase a required part from an outside supplier at $35. Division Beta will supply the part at a transfer price of $38.50. Division Alpha's manager should

Committed costs are engineered into a product or service at the design stage of product development.

The Changing Business Environment - a Managers Perspective

Costing Systems- Job Order Costing

Costing Systems- Process Costing

Value-Based Systems- Abm and Lean

Cost Behavior Analysis

The Budgeting Process

Performance Management and Evaluation

Standard Costing and Variance Analysis

Short Run Decision Analysis

Capital Investment Analysis

Quality Management and Measurement

Financial Analysis of Performance

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