Transfer Pricing Flash Cards PDF

The price that one division of a company charges another division for goods or services provided is called the: a\. Market price b\. Transfer price c\. Outlay price d\. Distress price From the standpoint of the company, the important question in transfer pricing is a. What is fair to the divi...

The price that one division of a company charges another division for goods or services provided is called the: a\. Market price b\. Transfer price c\. Outlay price d\. Distress price From the standpoint of the company, the important question in transfer pricing is a. What is fair to the divisions b. How to determine the profit of the divisions c\. Whether or not the transfer should take place c. When the transfer should be made As a general rule, the best transfer price to use to transfer the costs of a service center to an operating department is a\. The price charged by an outside company for the same service b\. The price that encourages goal congruence c\. One that is based on budgeted variable cost d\. One that is based on budgeted total cost Which of the following is a consistently desirable characteristic in a transfer pricing system? a\. System is very complex to be the most fair to the buying and selling units b\. Effect on subunit performance measures is not easily determined c\. System should reflect organizational goals d\. Transfer price remains constant for a period of at least two years In a decentralized company in which divisions may buy goods from one another, the transfer pricing system should be designed primarily to a\. Minimize the degree of autonomy of division managers b\. Aid in the appraisal and motivation of managerial performance c\. Increase the consolidated value of inventory d\. Discourage division managers from buying from outsiders Market-based transfer prices are best for a\. The company when the selling division is operating below capacity b\. The company when the selling division is operating at capacity c\. The buying division if it is operating at capacity d\. The buying division Given a competitive outside market for identical intermediate goods, what is the best transfer price, assuming all relevant information is readily available? a\. Average cost of production b\. Average cost of production plus average production department\'s allocated profit c\. Market price of the intermediate goods d\. Market price of the intermediate goods less average production department\'s allocated profit The transfer pricing method that allows managers the greatest degree of authority and control over the profit of their units is a\. Market pricing b\. Arbitrary methods c\. Cost d\. Negotiated pricing Which of the following is the most valid reason for not using a cost-plus transfer price between decentralized units of a company? A cost-plus transfer price a\. Does not reflect the excess capacity of the supplying unit b\. Is typically more costly to implement c\. Does not ensure the control of costs of a supplying unit d\. Is not available unless market-based prices are available The most valid reason for using something other than a full-cost-based transfer price between units of a company is because a full-cost price a\. Is typically more costly to implement b\. Does not ensure the control of costs of a supplying unit c\. Is not available unless market-based prices are available d\. Does not reflect the excess capacity of the supplying unit With two autonomous division managers, the price of goods transferred between the divisions needs to be approved by a\. Corporate management b\. Both divisional managers c\. Both divisional managers and corporate management d\. Corporate management and the manager of the buying division The minimum potential transfer price is determined by a\. Incremental costs in the selling division b\. The lowest outside price for the good c\. The extent of idle capacity in the buying division d\. Negotiations between the buying and selling division Which of the following is true about transfer prices for sales between divisions located in different countries? a\. They should consider the tax structures in the two countries b\. They are usually set by the governments of the two countries c\. They cannot affect the total income of the company d\. All of the above Division P of the Kenshemrock Company makes a part that can either be sold to outside customers or transferred internally to Division Q for further processing. Annual data relating to this part are as follows: Annual production capacity\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\..... 80,000 units Selling price of the item to outside customers\...\...\...\...\...\...\... P35 Variable cost per unit\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\... P23 Fixed cost per unit \...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\.... P5 Division Q of the company requires 15,000 units per year and is currently paying an outside supplier P33 per unit. **Question 1:** If outside customers demand only 50,000 units per year, what is the lowest acceptable transfer price from the viewpoint of the selling division? a\. P 35 b\. P 33 c\. P 28 d\. P 23 Division P of the Kenshemrock Company makes a part that can either be sold to outside customers or transferred internally to Division Q for further processing. Annual data relating to this part are as follows: Annual production capacity\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\..... 80,000 units Selling price of the item to outside customers\...\...\...\...\...\...\... P35 Variable cost per unit\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\... P23 Fixed cost per unit \...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\.... P5 Division Q of the company requires 15,000 units per year and is currently paying an outside supplier P33 per unit. **Question 2:** If outside customers demand 80,000 units, what is the lowest acceptable transfer price from the viewpoint of the selling division? a\. P 35 b\. P 33 c\. P 28 d\. P 23 Division P of the Kenshemrock Company makes a part that can either be sold to outside customers or transferred internally to Division Q for further processing. Annual data relating to this part are as follows: Annual production capacity\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\..... 80,000 units Selling price of the item to outside customers\...\...\...\...\...\...\... P35 Variable cost per unit\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\... P23 Fixed cost per unit \...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\.... P5 Division Q of the company requires 15,000 units per year and is currently paying an outside supplier P33 per unit. **Question 3:** If outside customers demand 80,000 units and if, by selling to Division Q, Division P could avoid P4 per unit in variable selling expense, what is the lowest acceptable transfer price from the viewpoint of the selling division? a\. P 35 b\. P 21 c\. P 31 d\. P 33 Division P of the Kenshemrock Company makes a part that can either be sold to outside customers or transferred internally to Division Q for further processing. Annual data relating to this part are as follows: Annual production capacity\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\..... 80,000 units Selling price of the item to outside customers\...\...\...\...\...\...\... P35 Variable cost per unit\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\... P23 Fixed cost per unit \...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\.... P5 Division Q of the company requires 15,000 units per year and is currently paying an outside supplier P33 per unit. **Question 4:** If outside customers demand 70,000 units, what is the lowest acceptable transfer price from the viewpoint of the selling division for each of the 15,000 units needed by Q? a\. P 33 b\. P 27 c\. P 28 d\. P 29 Division A makes a part that it sells to customers outside of the Jomer Company. Data concerning this part appear below: Selling price to outside customers \...\...\...\...\...\...\...\.... P40 Variable cost per unit \...\...\...\...\...\...\...\...\...\...\...\...\...\...\... P30 Total fixed costs\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\... P10,000 Capacity in units \...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\..... 20,000 Division B of the same company would like to use the part manufactured by Division A in one of its products. Division B currently purchases a similar part made by an outside company for P38 per unit and would substitute the part made by Division A. Division B requires 5,000 units of the part each period. Division A is already selling all of the units it can produce to outside customers. If Division A sells to Division B rather than to outside customers, the variable cost per unit would be P1 lower. What is the lowest acceptable transfer price from the standpoint of the selling division? a\. P 40 b\. P 39 c\. P 38 d\. P 37 Angelika Company has two divisions: The C Division and the B Division. The B Division produces containers that can be used by the C Division. The B Division\'s variable manufacturing cost is P2, shipping cost is P0.10, and the external sales price is P3. No shipping costs are incurred on sales to the C Division, and the C Division can purchase similar containers in the external market for P2.60. **Question 1:** The B Division has sufficient capacity to meet all external market demands in addition to meeting the demands of the C Division. Using the general rule, the transfer price from the B Division to the C Division would be: a\. P 2.00 b\. P 2.10 c\. P 2.60 d\. P 2.90 Angelika Company has two divisions: The C Division and the B Division. The B Division produces containers that can be used by the C Division. The B Division\'s variable manufacturing cost is P2, shipping cost is P0.10, and the external sales price is P3. No shipping costs are incurred on sales to the C Division, and the C Division can purchase similar containers in the external market for P2.60. **Question 2:** Assume the B Division has no excess capacity and could sell everything it produced externally. Using the general rule, the transfer price from the B Division to the C Division would be: a\. P 2.00 b\. P 2.10 c\. P 2.60 d\. P 2.90 Angelika Company has two divisions: The C Division and the B Division. The B Division produces containers that can be used by the C Division. The B Division\'s variable manufacturing cost is P2, shipping cost is P0.10, and the external sales price is P3. No shipping costs are incurred on sales to the C Division, and the C Division can purchase similar containers in the external market for P2.60. **Question 3:** The maximum amount the C Division would be willing to pay for each bottle transferred would be: a\. P 2.00 b\. P 2.10 d\. P 2.60 d\. P 2.90 Ella Corporation manufactures and sells various high-tech office automation products. Two divisions of the company are the C Division and the D Division. The C Division manufactures one product, a \"super chip,\" that can be used by both the D Division and other external customers. The following information is available on this month\'s operations in the C Division: Selling price per chip P50 Variable costs per chip P20 Fixed production costs P60,000 Fixed SG&A costs P90,000 Monthly capacity 10,000 chips External sales 6,000 chips Internal sales 0 chips Presently, the D Division purchases no chips from the C Division, but instead pays P45 to an external supplier for the 4,000 chips it needs each month. **Question 1:** Assume that next month\'s costs and levels of operations in the C and D Divisions are similar to this month. What is the minimum of the transfer price range for a possible transfer of the super chip from one division to the other? a\. P 50 b\. P 45 c\. P 20 d\. P 35 Ella Corporation manufactures and sells various high-tech office automation products. Two divisions of the company are the C Division and the D Division. The C Division manufactures one product, a \"super chip,\" that can be used by both the D Division and other external customers. The following information is available on this month\'s operations in the C Division: Selling price per chip P50 Variable costs per chip P20 Fixed production costs P60,000 Fixed SG&A costs P90,000 Monthly capacity 10,000 chips External sales 6,000 chips Internal sales 0 chips Presently, the D Division purchases no chips from the C Division, but instead pays P45 to an external supplier for the 4,000 chips it needs each month. **Question 2:** Assume that next month\'s costs and levels of operations in the D and C Divisions are similar to this month. What is the maximum of the transfer price range for a possible transfer of the chip from one division to the other? a\. P 50 b\. P 45 c\. P 35 d\. P 30 Ella Corporation manufactures and sells various high-tech office automation products. Two divisions of the company are the C Division and the D Division. The C Division manufactures one product, a \"super chip,\" that can be used by both the D Division and other external customers. The following information is available on this month\'s operations in the C Division: Selling price per chip P50 Variable costs per chip P20 Fixed production costs P60,000 Fixed SG&A costs P90,000 Monthly capacity 10,000 chips External sales 6,000 chips Internal sales 0 chips Presently, the D Division purchases no chips from the C Division, but instead pays P45 to an external supplier for the 4,000 chips it needs each month. **Question 3:** Two possible transfer prices (for 4,000 units) are under consideration by the two divisions: P35 and P40. Corporate profits would be \_\_\_\_\_\_\_\_\_\_\_ if P35 is selected as the transfer price rather than P40 a\. P 20,000 larger b\. P 40,000 larger c\. P 20,000 smaller d\. The same Ella Corporation manufactures and sells various high-tech office automation products. Two divisions of the company are the C Division and the D Division. The C Division manufactures one product, a \"super chip,\" that can be used by both the D Division and other external customers. The following information is available on this month\'s operations in the C Division: Selling price per chip P50 Variable costs per chip P20 Fixed production costs P60,000 Fixed SG&A costs P90,000 Monthly capacity 10,000 chips External sales 6,000 chips Internal sales 0 chips Presently, the D Division purchases no chips from the C Division, but instead pays P45 to an external supplier for the 4,000 chips it needs each month. **Question 4:** If a transfer between the two divisions is arranged next period at a price (on 4,000 units of super chips) of P40, total profits in the C division will a\. Rise by P20,000 compared to the prior period b\. Drop by P40,000 compared to the prior period c\. Drop by P20,000 compared to the prior period d\. Rise by P80,000 compared to the prior period Ella Corporation manufactures and sells various high-tech office automation products. Two divisions of the company are the C Division and the D Division. The C Division manufactures one product, a \"super chip,\" that can be used by both the D Division and other external customers. The following information is available on this month\'s operations in the C Division: Selling price per chip P50 Variable costs per chip P20 Fixed production costs P60,000 Fixed SG&A costs P90,000 Monthly capacity 10,000 chips External sales 6,000 chips Internal sales 0 chips Presently, the D Division purchases no chips from the C Division, but instead pays P45 to an external supplier for the 4,000 chips it needs each month. **Question 5:** Assume, for this question only, that the C Division is selling all that it can produce to external buyers for P50 per unit. How would overall corporate profits be affected if it sells 4,000 units to the D Division at P45? (Assume that the D Division can purchase the super chip from an outside supplier for P45.) a\. No effect b\. P20,000 increase c\. P20,000 decrease d\. P90,000 increase