Optimal corporate decisions do NOT result

ACCOUNTING

Multiple Choice

Optimal corporate decisions do NOT result

a. when goods or services are transferred at market prices.

b. when goods or services are transferred at full-cost prices.

c. when goods or services are transferred at variable-cost prices.

d. for either (b) or (c).

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A benefit of using a market-based transfer price is

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Multiple Choice

A benefit of using a market-based transfer price is

a. the profits of the transferring division are sacrificed for the overall good of the corporation.

b. the profits of the division receiving the products are sacrificed for the overall good of the corporation.

c. the economic viability and profitability of each division can be evaluated individually.

d. none of the above.

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Transferring products or services at market prices generally leads to optimal decisions when

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Multiple Choice

Transferring products or services at market prices generally leads to optimal decisions when

a. the market for the intermediate product is perfectly competitive.

b. the interdependencies of the subunits are minimal.

c. there are no additional costs or benefits to the company in buying or selling in the external market.

d. all of the above are needed for optimal decisions.

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Which of the following formulas correctly reflects the company's operating income

ACCOUNTING

Multiple Choice

Division A sells soybean paste internally to Division B, which in turn, produces soybean burgers that sell for $5 per pound. Division A incurs costs of $0.75 per pound while Division B incurs additional costs of $2.50 per pound.

Which of the following formulas correctly reflects the company's operating income?

a. $5.00 - ($0.75 + $2.50) = $1.75

b. $5.00 - ($1.25 + $2.50) = $1.25

c. $5.00 - ($0.75 + $3.75) = $0.50

d. $5.00 - ($0.25 + $1.25 + $3.50) = 0

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What is Division A's operating income per pound, assuming the transfer price of the soybean paste is set at $1.25 per pound

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Multiple Choice

Division A sells soybean paste internally to Division B, which in turn, produces soybean burgers that sell for $5 per pound. Division A incurs costs of $0.75 per pound while Division B incurs additional costs of $2.50 per pound.

What is Division A's operating income per pound, assuming the transfer price of the soybean paste is set at $1.25 per pound?

a. $0.500

b. $0.875

c. $1.250

d. $1.625

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If the Assembly Division sells 100,000 pairs of shoes at a price of $60 a pair to customers, what is the operating income of both divisions together

ACCOUNTING

Multiple Choice

Calculate the Division operating income for the BetaShoe Company which manufacturers only one type of shoe and has two divisions, the Sole Division, and the Assembly Division. The Sole Division manufactures soles for the Assembly Division, which completes the shoe and sells it to retailers. The Sole Division "sells" soles to the Assembly Division. The market price for the Assembly Division to purchase a pair of soles is $20. (Ignore changes in inventory.) The fixed costs for the Sole Division are assumed to be the same over the range of 40,000-100,000 units. The fixed costs for the Assembly Division are assumed to be $7 per pair at 100,000 units.


Sole's costs per pair of soles are:

Direct materials $4

Direct labor $3

Variable overhead $2

Division fixed costs $1


Assembly's costs per completed pair of shoes are:

Direct materials $6

Direct labor $2

Variable overhead $1

Division fixed costs $7


If the Assembly Division sells 100,000 pairs of shoes at a price of $60 a pair to customers, what is the operating income of both divisions together?

a. $4,400,000

b. $3,400,000

c. $3,000,000

d. $2,600,000

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Assume the transfer price for a pair of soles is 180% of total costs of the Sole Division and 40,000 of soles are produced and transferred to the Assembly Division

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Multiple Choice

Calculate the Division operating income for the BetaShoe Company which manufacturers only one type of shoe and has two divisions, the Sole Division, and the Assembly Division. The Sole Division manufactures soles for the Assembly Division, which completes the shoe and sells it to retailers. The Sole Division "sells" soles to the Assembly Division. The market price for the Assembly Division to purchase a pair of soles is $20. (Ignore changes in inventory.) The fixed costs for the Sole Division are assumed to be the same over the range of 40,000-100,000 units. The fixed costs for the Assembly Division are assumed to be $7 per pair at 100,000 units.


Sole's costs per pair of soles are:

Direct materials $4

Direct labor $3

Variable overhead $2

Division fixed costs $1


Assembly's costs per completed pair of shoes are:

Direct materials $6

Direct labor $2

Variable overhead $1

Division fixed costs $7


Assume the transfer price for a pair of soles is 180% of total costs of the Sole Division and 40,000 of soles are produced and transferred to the Assembly Division. The Sole Division's operating income is

a. $320,000

b. $360,000

c. $400,000

d. $440,000

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