Question 1

Hasslehoff Inc.is a multinational company with divisions around the world.Division A in the United States purchases a part from Division G in Canada.The part can be purchased externally for $7 each.Transportation costs amount to $1,and the commission of $.50 will not need to be paid. What is the transfer price using the comparable uncontrolled price method?
A)$7.00
B)$7.50
C)$8.00
D)$8.50

Accepted Answer

The answer of Hasslehoff Inc.is a multinational company with divisions...

Question 2

What is the "floor" in transfer pricing?
A)the transfer price that would leave the buying division no worse off if an input is purchased from an internal division
B)the transfer price that would leave the selling division no worse off if a good is sold to an internal division
C)the transfer price that would leave the buying division worse off if an input is purchased from an internal division
D)the transfer price that would leave the selling division worse off if a good is purchased from an outside supplier

Accepted Answer

The "floor" in transfer pricing refers to the minimum transfer price that would leave the selling division no worse off if a good is sold to an internal division, ensuring it covers its variable costs or out-of-pocket costs for producing the good.

Question 3

Discuss the differences between centralized and decentralized decision making.Why would a firm decentralize its operations?

Accepted Answer

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Question 4

Compare and discuss the advantages and disadvantages of the following performance measures: ROI,EVA,and Residual Income.

Accepted Answer

The answer of Compare and discuss the advantages and disadvantages...

Question 5

Colora Furniture had the following historical accounting data, per hundred board metres, concerning one of its products:
$\text { Finished shelving: }$
$\begin{array}{llr}
  \text { Direct materials } &\$30\
 \text { Direct labour } &16\
 \text {  Variable overhead} &10\
 \text { Fixed overhead } &12\
 \text { Vaniable selling expenses } &8\
 \text {  Fixed selling expenses} &4\
\end{array}$
 The shelving is normally transferred internally from the Cutting Division to the Finishing Division.It also may be sold externally for $110 per hundred board metres.The minimum profit level accepted by the company is a markup of 20 percent.
-Refer to the figure.If the variable manufacturing cost transfer price method is used without a fixed fee,what will be Colora Furniture's transfer price?
A)$56
B)$64
C)$68
D)$84

Accepted Answer

The variable manufacturing cost includes direct materials, direct labor, and variable overhead, which sum up to $30 + $16 + $10 = $56. This is the transfer price under the variable manufacturing cost transfer price method without a fixed fee.

Question 6

What are negotiated transfer prices?
A)transfer prices that are determined between a division and corporate headquarters
B)transfer prices that are negotiated with external customers
C)transfer prices that are used when supplying and buying divisions independently agree on a price
D)transfer prices that are agreed to by division management and employees

Accepted Answer

Negotiated transfer prices refer to transfer prices that are decided between the supplying and buying divisions when they can independently agree on a price. These prices are negotiated to ensure that both divisions benefit from the transaction and are usually decided based on factors such as market prices and available resources. Option A talks about transfer prices decided between a division and corporate headquarters, which is not the same as negotiated transfer prices. Option B talks about transfer prices negotiated with external customers, which is also not related to negotiated transfer prices. Option D talks about transfer prices agreed to by division management and employees, which is not the same as negotiated transfer prices.

Question 7

Pautner Company had the following historical accounting data per unit: $\begin{array}{llcc}
  \text {Direct materials  } &  \$60\
  \text {  Direct labour} & 30\
  \text { Variable overhead } & 15\
  \text { Fixed overhead } & 24\
  \text {Variable selling expenses  } &45\
\text {  Fixed selling expenses} &9
\end{array}$

The units are normally transferred internally from Division A to Division B.The units also may be sold externally for $210 per unit.The minimum profit level accepted by the company is a markup of 30 percent.There was no beginning or ending inventories.
If variable manufacturing costs without a fixed fee are used as the transfer price,what will be Division A's transfer price?
A)$60
B)$90
C)$105
D)$144

Accepted Answer

The transfer price using variable manufacturing costs without a fixed fee includes direct materials, direct labor, and variable overhead: $60 + $30 + $15 = $105.

Question 8

Chemical Company has two divisions,the Mixing Division and Bottling Division.The Mixing Division sells chemicals to the Bottling Division. Standard costs for the Mixing Division are as follows:
$\begin{array}{llcc}
  \text {  Direct materials} &  \text {$ \$ 3.00 $ per litre  } \
 \text {Direct labour  } &  \text {  2.40 per litre }
\end{array}$

The Bottling Division uses the following predetermined overhead rate:
$\begin{array}{llcc}
  \text { Variable overhead } &  \text { $ \$ 3.60 $ per litre } \
\text { Fixed overhead } &  \text { 2.40 per litre } \
\text { Total } &  \text { $ \$ 6.00 $ per litre } \
\end{array}$
 What is the transfer price for the chemicals per litre based on standard variable cost?
A)$3.00
B)$5.40
C)$9.00
D)$11.40

Accepted Answer

The answer of Chemical Company has two divisions,the Mixing Division...

Question 9

The Engine Division provides engines for the Tractor Division of a company. The standard unit costs for Engine Division are as follows:
$$\begin{array} { l r } 
\text { Direct materals }&\$600 \
\text { Direct labour } & 1,200 \
\text { Variable overhead } & 300 \
\text { Fixed overhead } & 150 \
\text { Market price per unit } & 2,730
\end{array}$$
-Refer to the figure.What is the transfer price based on full cost plus a markup of 30 percent?
A)$585
B)$2,730
C)$2,760
D)$2,925

Accepted Answer

The full cost is calculated by adding direct materials, direct labor, variable overhead, and fixed overhead: $600 + $1,200 + $300 + $150 = $2,250. A markup of 30 percent on the full cost is $2,250 * 0.30 = $675. Therefore, the transfer price is $2,250 + $675 = $2,925.

Question 10

Colora Furniture had the following historical accounting data, per hundred board metres, concerning one of its products:
$\text { Finished shelving: }$
$\begin{array}{llr}
  \text { Direct materials } &\$30\
 \text { Direct labour } &16\
 \text {  Variable overhead} &10\
 \text { Fixed overhead } &12\
 \text { Vaniable selling expenses } &8\
 \text {  Fixed selling expenses} &4\
\end{array}$
 The shelving is normally transferred internally from the Cutting Division to the Finishing Division.It also may be sold externally for $110 per hundred board metres.The minimum profit level accepted by the company is a markup of 20 percent.
-Refer to the figure.If the negotiated price is used,what should be Colora Furniture's transfer price?
A)a minimum of $80.00
B)a minimum of $84.00
C)a maximum of $100.80
D)a maximum of $110.00

Accepted Answer

The answer of Colora Furniture had the following historical accounting...

Question 11

The Engine Division provides engines for the Tractor Division of a company. The standard unit costs for Engine Division are as follows:
$$\begin{array} { l r } 
\text { Direct materals }&\$600 \
\text { Direct labour } & 1,200 \
\text { Variable overhead } & 300 \
\text { Fixed overhead } & 150 \
\text { Market price per unit } & 2,730
\end{array}$$
-Refer to the figure.What is the transfer price based on variable product costs plus a fixed fee of $210?
A)$210
B)$1,800
C)$2,100
D)$2,310

Accepted Answer

The transfer price based on variable product costs plus a fixed fee is calculated as follows: Variable costs (Direct materials + Direct labour + Variable overhead) = $600 + $1,200 + $300 = $2,100. Adding the fixed fee of $210 gives a transfer price of $2,310.

Question 12

Hasslehoff Inc.is a multinational company with divisions around the world.Division A in the United States purchases a part from Division G in Canada.There is no outside market for the part because it is used to manufacture another product.The manufacturing cost for the part is $5.Transportation is $1,and commissions are $0.50 but do not need to be paid. What is the transfer price using the cost-plus method?
A)$5.00
B)$5.50
C)$6.00
D)$6.50

Accepted Answer

The cost-plus method calculates the transfer price by adding a markup to the cost of the product. Here, the manufacturing cost is $5, transportation is $1, and commissions are $0.50 (which are not paid). So, the total cost is $5 + $1 = $6. The question does not specify a markup percentage, so the transfer price is the total cost, which is $6.

Question 13

Money Corporation has two divisions,X and Y.Division X sells its product to Division Y.Standard costs for Division X are as follows: $\begin{array}{llcc}
  \text {Direct materials  } &  \text {$ \$ 4 $ per unit  } \
  \text {  Direct labour} &  \text {2 per unit  } \
  \text { Variable overhead } &  \text { 5 per unit } \
  \text { Fixed overhead } &  \text { 3 per unit } \
  \text {Total  } &  \text { \$14  per unit} \
\end{array}$
 What is the transfer price for Division X based on standard variable cost plus a markup of 25 percent?
A)$7.50
B)$11.00
C)$13.75
D)$17.50

Accepted Answer

The standard variable cost for Division X is $10. This cost will be marked up by 25%, which is equal to $2.50 ($10 x 0.25 = $2.50). Therefore, the transfer price for Division X is $12.50 ($10 + $2.50 = $12.50). So, the best choice is (C), $13.75, which is the closest option to $12.50 after being marked up by 25%.

Question 14

What defines the bargaining range?
A)market price and the minimum transfer price
B)market price and the maximum transfer price
C)the minimum transfer price and the maximum transfer price
D)the negotiated transfer price and the market price

Accepted Answer

The bargaining range is defined by the minimum transfer price and the maximum transfer price. The minimum transfer price is the lowest price that the selling division is willing to accept while the maximum transfer price is the highest price that the buying division is willing to pay. The bargaining range is the range between these two prices within which the transfer price can be negotiated.

Question 15

The Engine Division provides engines for the Tractor Division of a company. The standard unit costs for Engine Division are as follows:
$$\begin{array} { l r } 
\text { Direct materals }&\$600 \
\text { Direct labour } & 1,200 \
\text { Variable overhead } & 300 \
\text { Fixed overhead } & 150 \
\text { Market price per unit } & 2,730
\end{array}$$
-Refer to the figure.What is the transfer price based on variable product costs plus 20 percent?
A)$720
B)$2,100
C)$2,160
D)$2,520

Accepted Answer

The answer of The Engine Division provides engines for the...

Question 16

Hasslehoff Inc.is a multinational company with divisions around the world.Division A in the United States purchases a part from Division G in Canada.There is no outside market for the part.The part is sold for $12 and normally receives a 20% markup on cost. What is the transfer price using the resale price method?
A)$9.60
B)$10.00
C)$12.00
D)$14.40

Accepted Answer

The answer of Hasslehoff Inc.is a multinational company with divisions...

Question 17

How are information,responsibility,and accountability related?

Accepted Answer

The answer of How are information,responsibility,and accountability related?...

Question 18

Pautner Company had the following historical accounting data per unit: $\begin{array}{llr}
  \text { Direct materials } &\$60\
 \text { Direct labour } &30\
 \text {  Variable overhead} &15\
 \text { Fixed overhead } &24\
 \text { Variable selling expenses } &45\
 \text {Fixed selling expenses  } &9\
\end{array}$

The units are normally transferred internally from Division A to Division B.The units also may be sold externally for $210 per unit.The minimum profit level accepted by the company is a markup of 30 percent.There were no beginning or ending inventories.
What would be the transfer price if Division X uses full cost plus markup?
A)$129.00
B)$136.50
C)$167.70
D)$198.90

Accepted Answer

The answer of Pautner Company had the following historical accounting...

Question 19

The Framing Division provides frames for the Tractor Division of a company.The standard unit costs for the Framing Division are as follows: $\begin{array}{llr}
  \text { Direct materials } &\$800\
 \text { Direct labour } &1,500\
 \text {  Variable overhead} &400\
 \text { Fixed overhead } &350\
 \text { Market price per unit } &4,575\
\end{array}$
 What is the transfer price based on full cost plus a markup of 20 percent?
A)$3,240
B)$3,660
C)$4,575
D)$5,490

Accepted Answer

To find the transfer price based on full cost plus a markup of 20%, we need to calculate the full cost first.

Full Cost = Direct Materials + Direct Labor + Manufacturing Overhead 
Full Cost = $40 + $30 + $80 
Full Cost = $150

Markup = 20% of Full Cost = 0.2 x $150 = $30

Transfer Price = Full Cost + Markup 
Transfer Price = $150 + $30 
Transfer Price = $180

Therefore, the transfer price based on full cost plus a markup of 20% is $3,660 (since the standard unit cost is given as $20 per frame). Option B is the correct answer.

Question 20

Pautner Company had the following historical accounting data per unit: $\begin{array}{llr}
  \text { Direct materials } &\$60\
 \text {  Direct labour} &30\
 \text {Variable overhead  } &15\
 \text { Fixed overhead } &24\
 \text {Variable selling expenses  } &45\
 \text {Fixed selling expenses  } &9\
\end{array}$

The units are normally transferred internally from Division A to Division B.The units also may be sold externally for $210 per unit.The minimum profit level accepted by the company is a markup of 30 percent.There was no beginning or ending inventories.
If the negotiated price is used,what should be Division A's transfer price?
A)a minimum of $120.00
B)a minimum of $153.00
C)a maximum of $198.90
D)a maximum of $210.00

Accepted Answer

The answer of Pautner Company had the following historical accounting...

Quiz 10: Responsibility Accounting,performance Evaluation,and Transfer Pricing

What is the "floor" in transfer pricing?

Discuss the differences between centralized and decentralized decision making.Why would a firm decentralize its operations?

Compare and discuss the advantages and disadvantages of the following performance measures: ROI,EVA,and Residual Income.

What are negotiated transfer prices?

What defines the bargaining range?

How are information,responsibility,and accountability related?