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
a. tell his immediate supervisor that Division Beta is being unreasonable.
b. negotiate an appropriate transfer price with the manager of Division Beta.
c. pay the $38.50 price to Division Beta.
d. buy from the outside supplier.
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 time and materials pricing method would be calculated as follows:
a. ($913,000.00 ÷ 100,000) + {($913,000.00 ÷ 100,000) ´ [($90,000 + $290,000) ÷ $913,000.00]}
b. ($1,203,000.00 ÷ 100,000) + [($1,203,000.00 ÷ 100,000) ´ ($90,000 ÷ $1,203,000.00)]
c. ($1,203,000.00 ÷ 100,000) + [($500,000 ÷ 100,000) ´ 0.1875]
d. None of these
An example of a pricing objective is to
a. maintain a minimum rate of return.
b. increase market share irrespective of the cost of a product.
c. ignore long-term pricing strategies in favor of short-term profits.
d. maintain a price that is always under that of the competition.
Development of a transfer price involves
a. direct upper management intervention if different transfer prices are determined by the selling division and the buying division.
b. including only costs allocated from corporate levels when determining semi-finished product line costs.
c. heavy reliance on industry averages.
d. applying a target profit rate to the unit cost for the semi-finished product.
Which of the following is not one of the three commonly used methods for determining transfer prices?
a. Negotiated
b. Cost-plus
c. Market-based
d. Dictated
The primary difference between a cost-based transfer price and a market-based transfer price is
a. the influence of an external source for the raw material or part.
b. that the cost-based price will always be more advantageous to the company's overall profit.
c. that the market-based price is usually lower.
d. the appropriate profit factor.
A pricing method based on product cost is
a. cost of goods sold pricing.
b. gross margin pricing.
c. inventory pricing.
d. net income pricing.
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:
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
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 return on assets pricing method would be calculated as follows:
a. ($913,000.00 ÷ 100,000) + {($913,000.00 ÷ 100,000) ´ [($90,000 + $290,000) ÷ $913,000.00]}
b. ($1,203,000.00 ÷ 100,000) + [($1,203,000.00 ÷ 100,000) ´ ($90,000 ÷ $1,203,000.00)]
c. ($1,203,000.00 ÷ 100,000) + [($500,000 ÷ 100,000) ´ 0.1875]
d. None of these
A common problem associated with transfer pricing occurs when
a. managers do not agree with the transfer prices of the inputs provided to them or of the outputs of their own division.
b. the gross margin pricing method is used to compute the price.
c. a division sells its excess output to an external customer.
d. a division purchases inputs for processing from an outside source at a price higher than the internal transfer price.
Transfer pricing
a. incorporates procedures that allow for ease in determining the amount of profit associated with each division of a decentralized company.
b. is a concept readily accepted by managers of divisions, because it relies on concepts used in cost-based pricing methods.
c. involves determining the cost and profit if the output of one division is transferred to another division of the same company.
d. is not used by many companies because it is difficult to eliminate intercompany profits.
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
| a. | tell his immediate supervisor that Division Beta is being unreasonable. | |
| b. | negotiate an appropriate transfer price with the manager of Division Beta. | |
| c. | pay the $38.50 price to Division Beta. | |
| d. | buy from the outside supplier. |
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 time and materials pricing method would be calculated as follows:
| a. | ($913,000.00 ÷ 100,000) + {($913,000.00 ÷ 100,000) ´ [($90,000 + $290,000) ÷ $913,000.00]} | |
| b. | ($1,203,000.00 ÷ 100,000) + [($1,203,000.00 ÷ 100,000) ´ ($90,000 ÷ $1,203,000.00)] | |
| c. | ($1,203,000.00 ÷ 100,000) + [($500,000 ÷ 100,000) ´ 0.1875] | |
| d. | None of these |
An example of a pricing objective is to
| a. | maintain a minimum rate of return. | |
| b. | increase market share irrespective of the cost of a product. | |
| c. | ignore long-term pricing strategies in favor of short-term profits. | |
| d. | maintain a price that is always under that of the competition. |
Development of a transfer price involves
| a. | direct upper management intervention if different transfer prices are determined by the selling division and the buying division. | |
| b. | including only costs allocated from corporate levels when determining semi-finished product line costs. | |
| c. | heavy reliance on industry averages. | |
| d. | applying a target profit rate to the unit cost for the semi-finished product. |
Which of the following is not one of the three commonly used methods for determining transfer prices?
| a. | Negotiated | |
| b. | Cost-plus | |
| c. | Market-based | |
| d. | Dictated |
The primary difference between a cost-based transfer price and a market-based transfer price is
| a. | the influence of an external source for the raw material or part. | |
| b. | that the cost-based price will always be more advantageous to the company's overall profit. | |
| c. | that the market-based price is usually lower. | |
| d. | the appropriate profit factor. |
A pricing method based on product cost is
| a. | cost of goods sold pricing. | |
| b. | gross margin pricing. | |
| c. | inventory pricing. | |
| d. | net income pricing. |
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:
| 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 |
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 return on assets pricing method would be calculated as follows:
| a. | ($913,000.00 ÷ 100,000) + {($913,000.00 ÷ 100,000) ´ [($90,000 + $290,000) ÷ $913,000.00]} | |
| b. | ($1,203,000.00 ÷ 100,000) + [($1,203,000.00 ÷ 100,000) ´ ($90,000 ÷ $1,203,000.00)] | |
| c. | ($1,203,000.00 ÷ 100,000) + [($500,000 ÷ 100,000) ´ 0.1875] | |
| d. | None of these |
A common problem associated with transfer pricing occurs when
| a. | managers do not agree with the transfer prices of the inputs provided to them or of the outputs of their own division. | |
| b. | the gross margin pricing method is used to compute the price. | |
| c. | a division sells its excess output to an external customer. | |
| d. | a division purchases inputs for processing from an outside source at a price higher than the internal transfer price. |
Transfer pricing
| a. | incorporates procedures that allow for ease in determining the amount of profit associated with each division of a decentralized company. | |
| b. | is a concept readily accepted by managers of divisions, because it relies on concepts used in cost-based pricing methods. | |
| c. | involves determining the cost and profit if the output of one division is transferred to another division of the same company. | |
| d. | is not used by many companies because it is difficult to eliminate intercompany profits. |
