In analyzing transfer prices

ACCOUNTING

Multiple Choice

In analyzing transfer prices,

a. the buyer will not willingly purchase a product for less than the incremental costs incurred to manufacture the product internally.

b. the seller will not willingly sell a product for less than the incremental costs incurred to make the product.

c. the buyer will willingly pay more than the ceiling transfer price.

d. the buyer will not pay less than the ceiling transfer price.

Click here for the SOLUTION

An advantage of using budgeted costs for transfer pricing among divisions is

ACCOUNTING

Multiple Choice

An advantage of using budgeted costs for transfer pricing among divisions is

a. overall corporate profitability is usually higher.

b. it usually provides a basis for optimal decision making.

c. the divisions know the transfer price in advance.

d. it promotes subunit autonomy.

Click here for the SOLUTION

Crush Company makes internal transfers at 160% of full cost

ACCOUNTING

Multiple Choice

Crush Company makes internal transfers at 160% of full cost. The Soda Refining Division purchases 40,000 containers of carbonated water per day, on average, from a local supplier, who delivers the water for $40 per container via an external shipper. In order to reduce costs, the company located an independent supplier in Illinois who is willing to sell 40,000 containers at $30 each, delivered to Crush Company's Shipping Division in Missouri. The company's Shipping Division in Missouri has excess capacity and can ship the 40,000 containers at a variable cost of $4.50 per container. What is the total cost of purchasing the water from the Illinois supplier and shipping it to the Soda Division?

a. $1,200,000

b. $1,380,000

c. $1,600,000

d. $180,000

Click here for the SOLUTION

Crush Company makes internal transfers at 180% of full cost

ACCOUNTING

Multiple Choice

Crush Company makes internal transfers at 180% of full cost. The Soda Refining Division purchases 30,000 containers of carbonated water per day, on average, from a local supplier, who delivers the water for $30 per container via an external shipper. In order to reduce costs, the company located an independent supplier in Missouri who is willing to sell 30,000 containers at $20 each, delivered to Crush Company's Shipping Division in Missouri. The company's Shipping Division in Missouri has excess capacity and can ship the 30,000 containers at a variable cost of $2.50 per container. What is the total cost to Crush Company if the carbonated water is purchased from the local supplier?

a. $ 900,000

b. $1,200,000

c. $1,501,000

d. $1,620,000

Click here for the SOLUTION

When companies do not want to use market prices or find it too costly, they typically use _______________prices, even though suboptimal decisions may occur

ACCOUNTING

Multiple Choice

When companies do not want to use market prices or find it too costly, they typically use _______________prices, even though suboptimal decisions may occur.

a. average-cost

b. full-cost

c. long-run cost

d. short-run average cost

Click here for the SOLUTION

Cost-based transfer prices are helpful

ACCOUNTING

Multiple Choice

Cost-based transfer prices are helpful

a. when a market exists for the product.

b. when a price is easy to obtain.

c. when the product is unique.

d. for all of the above.

Click here for the SOLUTION

When an industry has excess capacity, market prices may drop well below their historical average

ACCOUNTING

Multiple Choice

When an industry has excess capacity, market prices may drop well below their historical average. If this drop is temporary, it is called

a. distress prices.

b. dropped prices.

c. low-average prices.

d. substitute prices.

Click here for the SOLUTION