Seminar in Managerial Acct
In the article "Pitfalls of Cost-plus Transfer Pricing." which of the following suggestions were offered as potential resolutions to the problems associated with transfer pricing?
a) Avoid setting up divisions that sell to both external and internal customers b) Set all transfer prices at incremental cost and allow managers in the selling division to profit only from external sales of output c) All of these were proposed resolutions d) Set up divisions that only sell to internal customers as cost centers whereby they are evaluated only on efficiency of operations e) Use a dual pricing system where the selling division shows revenue based on incremental cost + markup but the buying division is only charged the incremental cost (no markup)
The most frequently used method for setting transfer prices is:
a) Market-based b) Negotiated (hybrid) c) Cost-Based d) No difference in usage between the 3 methods
Division S (seller) incurs variable cost of $80 per unit. There is unlimited demand for the output of Division S in the external market where the market price is $125 per unit. IF there is excess capacity in Division S, what is the minimum transfer price Division S will accept to avoid incurring a loss?
a) Some other amount b) $125 c) $80
Meridian Company's Production Division was operating below capacity. Its Assembly Division had been buying a part for its final product XX-1 in the external market for $40 per unit and is now asking the Production Division to supply 10,000 units of this part for $30 per unit. The variable cost for the Production Department would be $22.00. What negotiated (hybrid) transfer price would allow each of the 2 parties to benefit equally?
a) Some other amount b) $31 c) $25 d) $22 e) $40
Calgary Lumber has a raw lumber division and a finished lumber division. The variable costs are as follows: Raw lumber division = $125 per 100 board-ft Finished lumber division= $145 per 100 board-feet of finished lumberAssume that there is no board-feet loss in processing raw lumber into finished lumber. Raw lumber can be sold at $175 per 100 board-feet. Finished lumber can be sold at$345 per 100 board-feet. The transfer price is set at 130% of variable cost. Assume Finished Lumber Division has a special order whereby the new customer offers to pay $300 per 100 board-feet. Also assume that both divisions have the capacity needed for this special order. Which of the following will likely result in regard to this special offer?
a) The Finished Lumber Division will reject this special order and this decision will positively impact overall company profits b) The Finished Lumber Division will reject this special order and this decision will negatively impact overall company profits c) The Finished Lumber Division will accept this special order and this decision will negatively impact overall company profits d) The Finished Lumber Division will accept this special order and this decision will positively impact overall company profits
Calgary Lumber has a raw lumber division and a finished lumber division. The variable costs are as follows: Raw lumber division = $125 per 100 board-ft Finished lumber division= $145 per 100 board-feet of finished lumberAssume that there is no board-feet loss in processing raw lumber into finished lumber. Raw lumber can be sold at $175 per 100 board-feet. Finished lumber can be sold at$345 per 100 board-feet.Assume that internal transfers are made at 130%. Which of the following statements is CORRECT?
a) The incremental profit for the company by processing raw lumber further amounts to $25 per 100 board-feet. b) All of these statements are correct c) The raw lumber division will not be in favor of this transfer price if unlimited demand exists in the external market for raw lumber. d) The finished lumber division will benefit from this transfer price. e) None of these statements are correct
Which of the following statements is CORRECT concerning transfer prices between Division S (seller ) and Division B (buyer)?
a) To encourage operational efficiency in Division S, the transfer price when selling to Division B should be based on actual costs. b) All of these statements are Correct c) Division managers are fully aware of the cost structure of other divisions and can see how decisions they make impact other divisions and the company as a whole. d) Divisional managers in a decentralized organization will tend to make decisions that improve overall company profits, even if the decision results in an operating loss for their division. e) None of these statements are Correct.
Which statement best describes the effect of transfer pricing between Division S (seller) and Division B (buyer) on overall company profits?
a) Transfer pricing directly impacts overall company profits as well as the profits of Divisions S and B. b) Transfer prices do not directly impact company profits but can lead to decisions which do negatively impact overall profits. This negative impact on overall company profits is obvious to division managers and top management. c) Transfer prices relate to internal transactions (between Division S and Division B) and therefore do not impact overall company profits d) Transfer prices do not directly impact company profits but can lead to decisions which do negatively impact overall profits. This negative impact on overall company profits is insidious and may not be transparent to division managers or top management.
