Two divisions within an organisation have autonomy to decide whether to trade with eachother or not, and to negotiate transfer prices. The selling division sells its output externally atthe external market price, and there is sufficient external demand to ensure that the sellingdivision could sell all that it can produce to external customers. A transfer price has beenagreed between the two divisions that is below the external market price.Which of the following is the most likely reason for making internal transfers at lessthan the external selling price of the selling division?
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1 .Division A supplies other divisions within the company with component parts. There areother suppliers in the market supplying virtually identical products with known prices, andDivision A also supplies third-party companies.From the viewpoint of the company as a whole, what is the optimal basis for the transferprice for components sold by Division A to other divisions within the company?
A Full cost plus a profit margin B Marginal cost C Market price D Market price less marketing costs
2 .
A Machining $487,500;Assembly $2,050,000 B Machining $522,500;Assembly $522,500 C Machining $555,000;Assembly $490,000 D Machining $555,000;Assembly $2,290,000
3 .What is the budgeted profit for the two sections?
A Design $22,464;Production $87,240 B Design $50,304;Production $36,936 C Design $27,840;Production $115,560 D Design $50,304;Production $213,000
4 .In relation to transfer pricing, which of the following statements is/are correct?(1) Negotiated transfer prices will always maximise total profit.(2) Market based transfer prices will always encourage internal transfers.
A 1 only B 2 only C Neither 1 nor 2 D Both 1 and 2
5 .Which of the following statements about transfer pricing is correct?
A Head office managers should never be involved in transfer pricing decisions B The market price will always be the most appropriate transfer price C The transfer price will not affect divisional profits D The transfer price should promote goal congruence
7 .Which of the following statements about transfer pricing is correct?
A Cost based transfer prices encourage the transferring division to control costs B The transferring division’s profit can be maximised at a transfer price below marketprice C Market based transfer prices always maximise overall company profits D The basis used to calculate transfer price will not...
8 .Division Sell is operating at full capacity producing component XBD2 which it sellsexternally for $8.00 per unit. The variable cost of production is $5 per unit. Another internaldivision, Division Buy is negotiating a transfer price for purchasing component XBD2 fromDivision Sell. Because of saved transport costs, the variable cost of producing componentXBD2 for Division Buy would be $4.50 per unit.What is the minimum transfer price that Division Sell should accept for transferringcomponent XBD2 to Division Buy?
A $4.50 per unit B $5.00 per unit C $7.50 per unit D $8.00 per unit
9 .Melton Co has many divisions which it evaluates using Return on Investment (ROI) andResidual Income (RI) measures. The Mowbray division has net assets of USD24 million at 30September 2014. In the year to 30 September 2014 it earned profit before interest and tax of USD3.6 million. The appropriate cost of capital for the Mowbray division is 12%.During the year to 30 September it paid interest of $0.6 million.What are the ROI and RI for the year to 30 September 2014?
A ROI 12.5%; RI USD0.12 million B ROI 12.5%; RI USD0.72 million C ROI 15%; RI USD0.72 million D ROI 15%; RI USD3 million
10 .Tom Hopkin is responsible for managing the volume, quality and cost of production withinhis responsibility centre.A new management accountant has suggested that the following performance measuresshould be included in assessing Tom’s performance:(1) Return on investment.(2) Materials usage variances.(3) Percentage of products that are defective after inspection.Which of the above performance measures would be appropriate for measuring Tom’sperformance?
A 1 and 2 only B 1 and 3 only C 2 and 3 only D All of the above
