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37 views9 pagesSCM Chapter 10 - BOOK Ni NICA
strat cost
Uploaded by
frenzuaavellanoza1222Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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/ 9
SPALYVONIE MONIQUE P. (, ASA 2-1) ~~
a
1. TRUE OR FALSE STATEMENTS Write “True” ifthe statement is true and write
statement i false,
“alse ig,
FAUE MD
‘TRUE Fy) Using the negotiated transfer pricing approach, a minimum transfer price is Stablsheg 7
“the selling division, ;
FAIGE 3D There are two approaches for determining a transfer price: cost-based and. market
Fause /4—Tfa cost-based transfer price is used, the transfer price must be based on variable cost,
te 5A problem with a cost-based transfer prices that it does not provide adequate incentive,
the selling division to control costs.
RUE © 6, Inthe formula for a minimum transfer price, opportunity cost is the contribution Margin of
7 poets sold externally ° ey
FALSE The market-based transfer price approach produces a higher total contribution margin ty
~~ company (-based approach.
neu: "negotiated transfer price should Be used when an outside market forthe goods doe nop
i
ee
Face 13h nano ties Dewevre in diet com
as companies rely more on outsourcing,
4RUE Whites in tax rates between ‘countries: can. complicate the determination of the
_ ~__ appropriate transfer price. A
‘RUE ‘11 Decentralization provides a more effective basis for measuring a manager's performance, a
FALSE 2A, Price is'the price charged for the goods and services purchased from outside
{. stippliers.
FALSE 13 Aitanser prices the price charged forthe gooks an services sold to the ouside custome, 4, all of
FALSE CK tale pice sould be set equal tothe diference between variable cost and sles re except tl
Per unit.
TAISE. 450A transfer price of a division operating’at less than full capacity should be equal tothe
* gatside market.
TRUE i the transfer price is high, it would result in a high profit ofthe selling division and low
s it for the buying division,
TUE 17 Inall respect, the objective of transfer prices goal congruence.
5. The g
TRUE 18, The general rule formula for transfer’ price must be equal to’the additional ‘outlay ‘cost :
incurred because goods are trans{ |, plus any i
emed beus Plus any opportunity cost to the organization
FALSE 19: tional behavior is normally observed amon, the divisions particularly i is
a if -
oe is rmance measure is profit. 4 ie ice
i onal behavior is any action taken in conflict with organizat
Prsuncionl ‘ganizational goals. 6. Vari
Fase 2 oe Tule formula for transfer pricing is applicable only to an sp of no idle Ni
ASE. yin king a decision rel a
ie mone related to transfer pricing, trade-offs must not be considered. ¢
AE 25, Feder prices could be any amount as aged by the parties involved in the transfer of
= ‘goods and services between tesponsibility center,
RUE 24. When a division is operatin,
8 at capacity, the transfer pri oe
element of opportunity cost, the transfer price to other divisions includes an
ALSE Pic Transfer prices based on costar superior in that ie ty
costs between transferring divisions, they provide incentive for the control of SGN EN DEIDUG Ps CBSA 2t)
I. MULTIPLE CHOICE QUESTIONS
Encircle the letter that corresponds to the best answer of the following statements.
. Negotiated transfer pricing i
+ ecept that Pricing is not always used. because of each of the following reasons
a, market price information is sometimes ji
not easily obtainable.
b. allack of trust between the negotiating division, 4 3
negotiations, ‘egotiating divisions may lead to a breakdown in the
¢, negotiations often lead to different prici : MOH bs ra
oa , . Pricing strategies from dit to dir .
‘opportunity costissometimesnotdetermiuble’
2. All of the following are approaches for determining a transfer pri
a. cost-based approach. Se laboycraber
b, market-based approach.
¢._ negotiated approach.
© time and material approach.
3.) When a cost-based transfer price is used, the transfer price may be based on any of the
B. full cost.
c. variable cost.
d. all of these may be used.
4, All of the following are correct statements about the cost-based transfer price approach
except that it
‘a. can understate the actual contribution to profit by the selling division.
SA b. can reduce a division manager's control over the division's performance.
c. bases the transfer price on standard cost instead of actual cost.
provides incentive for the selling division to control costs.
5. The general formula for the minimum transfer price is: minimum transfer price equals
a. fixed cost + opportunity cost.
» b. external purchase price.
vv total cost + opportunity cost.
@ variable cost + opportunity cost.
6. Variable costs of units sold internally will always be
‘a. lower than the variable costs of units sold externally.
b. higher than the varjable costs of units sold externally.
Ze thesame as the variable costs of units sold externally.
variable costs of unity sold internally may be either higher or lower than for units
sold externally.
7. In the formula for the minimum ‘ransfer prices opportunity cost is the of the
goods sold externally.
‘a. variable cost
b. total cost SUPLAVUNNE MON IBvE ( BSA-2-1)
‘Chapter 10 Transfer Pricing
& selling price
contribution margin
8. The transl price approach that conceptually should work the best is the
a. cost-based approach,
~ b- market-based approach.
Negotiated price approach.
4d. time and material pricing approach. oe
9. The transfer price approach that is often considered the best approach because it severly
Provides the proper economic incentives is the
a. cost-based approach. ue ue
0 market-based approach.
negotiated price approach.
d. time and material pricing approach. 1. oe
of it
10. Alo the following ae correct statements about the market-based approach except that it ae
@. assumes that the transfer price should be based on the most objective inpuis fixe
possible. Jqo i! ae
p b. provides a fairer allocation of the company's contribution margin to each
division.
© produces a higher company contribution margin than the cost-based approach.
d. ensures that each division manager is properly motivated and rewarded, :
11. The negotiated transfer price approach should be used when
4. the selling division has available capacity and is willing to accept less than the 2M
market price. 4
J) anoutside market forthe goods does not exist. %
@ nomarket price is available.
any of these situations exist. 7
12, Assuming the selling division has available capacity, a negotiated transfer price should be :
within the range of
ft fixed cost per unit and the external purchase price,
d total cost per unit and the external Purchase price.
variable cost per unit and the external purchase price.
d. variable cost per unit and the Opportunity cost,
‘
14, The maximum transfer Price from the buying division’ 4
a. total cost + opportunity cost. “ns ven’ Sandein isthe
b. variable cost + opportunity cost SIDALYVONNE MONIBvE Casay? >.
external purchase price.
(external purchase price + opportunity cost.
45, All of the following are correct statements about tre i i
A ote afte texas exept at fansfers between divisions located in
‘a. differences in tax rates across countries inati
Seas complicate the determination of the
: b.“many companies prefer to report more income in countries with low tax rates.
ga, companies must pay income tax inthe country where income is generated.
(® ‘a decreasing number of transfers are between divisions located in different
countries.
[IL MULTIPLE CHOICE PROBLEMS Encircle the letter that corresponds to the best answer of the
{following problems.
1. Management of the Catering Company would like the Food Division to transfer 10,000 cans
ofits final product to the Restaurant Division for P80. The Food Division sells the product
Je cost per unit is P60 and its
fo customers for P140 per unit. The Food Division's varab
freed cost per unit is P20. The Food Division is currently operating t full capacity. What is
‘the minimum transfer price the Food Division should accept?
2. Management of the Catering Company would like the Food Division to transfer 10,000 cans
of its final product to the Restaurant Division for P80. The Food Division sells the product
to customers for P140 per unit. The Food Division's variable cost per unit is P60 and its
10. The Food Division has 10,000 units availablecapacity. ‘What is the
fixed cost per unit is P2
spina Fransfer price the Food Division should accept?
a. P20
ne
P80
d. P140
Use the following information. for the next two. questions:
‘ture Products, Inc, manufactures wood moldings and
‘The Wood Division of Furni
sells them externally for P100. Its variable cost is PAO per unit, and its fixed cost per unit is
P14. The company's president wants the Wood Division to transfer 5,000 units to another
company division at a price of P54.
3. Assuming the Wood Division has available capacity of §,000 units, the minimum transfer
/price it should accept is
Pi.
P40.~
c. P54.
d. P100. SIBALYVOME HONIBVE (asp 2+
, sath aa
4. Assuming the Wood Division does not have any available capacity, the minimum trae
price it should accept is,
a Pld
b. Pad.
ge PBA.
(2) Pi.
‘Alpha and Beta. Beta has alyay,
The Berg Company has’ two decentralized division’ ea h
; oat as woe Alpha ‘at PA-per unit. Because pipe an Se tok
Company for P80 per unit, Alpha wants to charge Bef same, ents Alpha Par
Sable costs P10,000 fixed costs, and it can produce a a 50 ds pe
month, If Berg allows Beta to buy from an outside market, Alp! ict a What
would be the result if Berg instigated a transfer price of ‘P80 Foe ought che uM
_- a. The company would lose because the circuit could sper Outside the
firm. '
‘The company would be better off to buy inside, regardless of the transfer price. -
~ ‘Thecompany would be beter off witha transfer price 0)
dd. The company would be better off allowing Beta to buy the circuit outside.
two divisions, A and B. Division A produces and sells a product
ol iene cup 3 tomers, The following data for Division A's
and can sel its entire output to outside cust
s
product is available:
Selling price P25 per unit
Variable cost P12 per unit
Fixed cost 8 per unit
Division B can use Division A’s product in its Production process and would like to
Uy this product from Division A. Division B is presently purchasing the product from an
i is unit, Assuming that Division A is operating at full capacity,
‘whatis the minimum price that Division A should charge for the units sold to Division B?
Pos =
. P23
c P20
d. Some price between P12 and P23.
Use the following information forthe next three questions:
Hubcap Division of Motorear, Inc. sells some of its output i and
jon 0 t, Inc. to outside firms
some to the Assembly Division of Mototcar, Inc. Assume the following information:
Variable cost (per unit) es
Fixed Cost (per unit) a
Capacity (in units) 300,000
Selling price to outsiders P10
bap Divisi :
Jae elapiin ee eee output to outsiders at the current price but
circumstances mis output at a pri shat
since tettnteyDvacer
i variable cost per unit i ?
b. Only if total fixed costs per unit remeins ee to less than Pl.
oe ae ONE ING MIWNIOVE BSA 2) !
c. Only if the Assembly Division can bu
if the 'y hubcaps elsewhere f .
€4) Only if variable costs of at least P150,000 can be avoided. mt Spite eh
8, Using Hubcap Division, assume that only 1: it
dion and hat bly has offescn ly 150,000 units can be sold externally by Hubcap
visi to buy 50,000 units, What is the lowest price that
Hubcap Division can charge on this sale without reducing its own segment margin?
BPO
oe
4. Pio
9. Assume Hubcap Division is currently’ selling its entire output externall
beap ly at P10 each: If
Assembly Division wants to purchase some of Hubcap’s output, what is the minimum price
re can charge the Assembly Division without reducing its own segment margin?
4
. PT
eS.
“ap
10. East Division and West Division are operated as autonomous investment centers of Greater
World, Inc. East Division manufactures a single product and is currently operating at 60%
of capacity. Budgeted amounts for the current year are as follows:
Sales (10,000 units) 1,000,000
iy Th Direct labor 250,000
Direct materials 200,000.
Overhead (1/3 fixed) 300,000
West Division has offered to buy 5,000 units from East but wants a “deal” on the price.
What is the minimum price that East can charge without reducing its current profitability?
a P75
@® Pos -
c. P85
11. An appropriate transfer price between two divisions of the Cook Company can be
determined ing data:
Assembly Division
Market price of subassembly P50 Number of units needed 900
Variable cost of assembly P20
Axcess capacity (in units) 1,000
is the natural bargaining range for the two divisions?
a) between P20 and P50
b. between P50 and P70
¢. P50is the only acceptable price
d. P20 is the only acceptable price SIPAL, YVONNE WONIDVE (454 21) 7
Division A has an expected annual production of 50,000 units and fixed manufacty,
costs of P300,000. The full absorption cost per unit is computed based annual production $
follows:
Variable costs P6.00
Fixed costs (P300,000 / 50,000) 6.00
Total full absorption cost per unit 12,00
Division A has idle capacity and Division B is considering to by 10,000 units trom
n A to be processed further and to sell at P21.00-per unit. Division B would incy,
additional processing costs and selling costs of P6.00 and P5.00 per unit, respectively
12. The total cost per unit to Division B assuming transfer price is based on full absorption cog
a. P17.00
b. P19.00
c. P13,00—
Gan
13. The contribution margin to profit per ui
absorption cost would be
a. P4.00
| (2.00) —
00
the total contribution margin to profit the company as a whole _ for 10,000
id to outside customers at P21.00 per unit?
nit to Division B if the transfer price is based on full
14. What would be
units transferred to Division B and later sol
Use the following data for the next five questions:
Office Products Inc. manufactures and sells various high-tech office automation
products. Two divisions of Office Products Inc. are the Computer Chip Division and the
‘Computer Division. The Computer Chip Division manufactures one product, a "super chip,’
that can be used by both the Computer Division and other external customers. Th
following information is available on this month's operations in the Computer Chip
Division:
Selling price per chip P50
Variable costs per chip P20
Fixed production costs 60,000
Fixed SG&A costs 90,000
Hout capacity 10,000 chips
% les 6,000 chij
Internal sales 5 fips ] qo aves WAL YvONNE MonlQuE (BSAz+)
qepectOTimstorPring
Presently, the Comy visi
Division, but instead pal et pte purchases no. chips from the Computer Chips
month. external supplier for the 4,000 chips it needs each
45, Assume that next month's costs and leve ions i
i e ron levels of ter-and Computer
fora
ivisions are similar to-this-month. What is the minimum of the transfer price
i oath, um of the i
reef ncn oe Sp tom me inane : nal
b. P45,
© P20
d. P35.
16, Asstime that next month's costs and levels of operations i
ssime the ont : operations in the Computer and Computer
Chip Divisions are similar to this month. What is the maximum of the transfer rice a
for a possible transfer ofthe chip from one division tothe other?
a. P50
P45 ~
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