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Managerial Accounting by AGE Ray Garrison Eric Noreen Peter Brewer 2nd Edition-Test Bank

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Managerial Accounting by AGE Ray Garrison Eric Noreen Peter Brewer 2nd Edition-Test Bank

Appendix 13A: Transfer Pricing

Question Type Difficulty LO1: Segment income statement LO2: ROI LO3: Residual income LO4: Balanced scorecard LO5: Transfer prices (App. 13A) LO6: Service department charges (App. 13B) Other topics Professional Exam Adapted
1 T/F M x
2 T/F M x
3 T/F M x
4 Conceptual M/C E x
5 M/C M x
6 M/C H x
7 M/C H x
8 M/C E x
9-10 Multipart M/C M x
11-12 Multipart M/C H x
13-15 Multipart M/C M-H x
16-17 Multipart M/C M x
18 Problem M x
19 Problem H x
20 Problem M x

True / False Questions

1. When a dispute arises over a transfer price, top managers should intervene to keep divisional managers from making a costly mistake, even though the divisions are evaluated as profit centers.
True False

2. One advantage of using actual cost incurred as the transfer price is that it provides a strong incentive for the producing division to control its costs.
True False

3. A division of a company has idle capacity and produces a part that has a variable cost of $52 per unit and a full (absorption) cost of $87. Another division of the same company uses such a part in one of its products and it can buy an identical part from an outside supplier for $81 per unit. The company will be worse off if the latter division decides to buy exclusively from the outside supplier than if the part is made inside the company and transferred from one division to the other.
True False

Multiple Choice Questions

4. Managers sometimes do not act in ways that are in the best interests of the overall company. What is the term for this?
A. Strategic approach
B. Suboptimization
C. Optimal motivation
D. Responsibility accounting

5. Division X makes a part that it sells to customers outside of the company. Data concerning this part appear below:

Selling price to outside customers $50
Variable cost per unit $30
Total fixed costs $400,000
Capacity in units 25,000

Division Y of the same company would like to use the part manufactured by Division X in one of its products. Division Y currently purchases a similar part made by an outside company for $49 per unit and would substitute the part made by Division X. Division Y requires 5,000 units of the part each period. Division X can sell all of the units it makes to outside customers. What is the lowest acceptable transfer price from the standpoint of the selling division?
A. $50
B. $49
C. $46
D. $30

6. Division X of Charter Corporation makes and sells a single product which is used by manufacturers of fork lift trucks. Presently it sells 12,000 units per year to outside customers at $24 per unit. The annual capacity is 20,000 units and the variable cost to make each unit is $16. Division Y of Charter Corporation would like to buy 10,000 units a year from Division X to use in its products. There would be no cost savings from transferring the units within the company rather than selling them on the outside market. What should be the lowest acceptable transfer price from the perspective of Division X?
A. $24.00
B. $21.40
C. $17.60
D. $16.00



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