Question 1

Raphael,Inc.has a division that manufactures a component that sells for $170 and has a variable cost of $50.Another division of the company wants to purchase the component.Fixed cost per unit of the component is $24.What is the minimum transfer price if the division is operating below its capacity?
A) $170
B) $50
C) $74
D) $24

Accepted Answer

B) Since the division is operating below capacity, the transfer price should be set at or above the variable cost. The variable cost is the minimum that can be accepted.

Question 2

Define cost-based transfer price.When should cost-based transfer pricing be used? Explain your answer.

Accepted Answer

The answer of Define cost-based transfer price.When should cost-based transfer...

Question 3

When a division is operating at capacity,the transfer price should be ________.
A) based on opportunity cost
B) a market-based transfer price
C) a cost-based transfer price
D) the total manufacturing cost

Accepted Answer

When a division is operating at capacity, the transfer price should be based on a market-based transfer price. This is because a market-based transfer price reflects the actual cost to buy or sell the product outside of the company. Using a cost-based transfer price or total manufacturing cost may not accurately reflect the true value of the product and can lead to inefficient allocation of resources within the company. Opportunity cost may also be considered, but a market-based transfer price is preferred.

Question 4

Holmes,Inc.has a division that manufactures a component that sells for $165 and has a variable cost of $45.Another division of the company wants to purchase the component.Fixed cost per unit of the component is $24.What is the transfer price if the division is operating at full capacity?
A) $69
B) $189
C) $165
D) $24

Accepted Answer

A) Because the division is operating at full capacity, it has a choice between selling to customers and transferring to another division. Therefore, the transfer price should be the market-based price.

Question 5

Atom,Inc.has a division that manufactures a component that sells for $160 and has a variable cost of $50.Another division of the company wants to purchase the component.Fixed cost per unit of the component is $20.What is the minimum transfer price if the division is operating at capacity?
A) $160
B) $50
C) $70
D) $20

Accepted Answer

A) The transfer price should be set at a value between the component's variable cost and its market price. The variable cost is the minimum that can be accepted.

Question 6

If a company allows division managers to negotiate a cost-based transfer price,it is better to use actual costs rather than standard costs.Otherwise,the selling division has no motivation to control costs.

Accepted Answer

Using standard costs for transfer pricing encourages cost control because it sets a benchmark for performance, whereas using actual costs could lead to inefficiencies being passed along without incentive for cost reduction.

Question 7

Opportunity cost is the benefit ________.
A) received by selling goods on behalf of another division
B) received by selling goods to one of the other divisions within the company
C) given up by purchasing goods at a price lower than its total manufacturing cost
D) given up by choosing an alternate course of action

Accepted Answer

Opportunity cost is the benefit given up by choosing an alternate course of action. It is the cost of foregone opportunities. Option A and B are related to selling goods to other divisions, hence not related to opportunity cost. Option C is related to purchasing goods at a lower cost than manufacturing cost, which is not the definition of opportunity cost.

Question 8

Define market-based transfer price.When should market-based transfer pricing be used? Explain your answer.

Accepted Answer

The answer of Define market-based transfer price.When should market-based transfer...

Question 9

A market-based transfer price considers the ________ when determining the transfer price.
A) variable costs
B) sales price of goods
C) cost of the goods
D) contribution margin

Accepted Answer

A market-based transfer price takes into account the sales price of goods, which reflects the price that the goods can be sold in the open market. This ensures that both the selling and buying divisions are being treated fairly and encourages both to make efficient and competitive decisions.

Quiz 24: Cost Allocation and Responsibility Accounting

Raphael,Inc.has a division that manufactures a component that sells for $170 and has a variable cost of $50.Another division of the company wants to purchase the component.Fixed cost per unit of the component is $24.What is the minimum transfer price if the division is operating below its capacity?

Define cost-based transfer price.When should cost-based transfer pricing be used? Explain your answer.

When a division is operating at capacity,the transfer price should be ________.

Holmes,Inc.has a division that manufactures a component that sells for $165 and has a variable cost of $45.Another division of the company wants to purchase the component.Fixed cost per unit of the component is $24.What is the transfer price if the division is operating at full capacity?

Atom,Inc.has a division that manufactures a component that sells for $160 and has a variable cost of $50.Another division of the company wants to purchase the component.Fixed cost per unit of the component is $20.What is the minimum transfer price if the division is operating at capacity?

If a company allows division managers to negotiate a cost-based transfer price,it is better to use actual costs rather than standard costs.Otherwise,the selling division has no motivation to control costs.

Opportunity cost is the benefit ________.

Define market-based transfer price.When should market-based transfer pricing be used? Explain your answer.

A market-based transfer price considers the ________ when determining the transfer price.