64) If outside customers demand 80,000 units and if, by selling to Division Q, Division P could
avoid $4 per unit in variable selling expense, then according to the formula in the text, what is
the lowest acceptable transfer price from the viewpoint of the selling division?
A) $35 per unit
B) $21 per unit
C) $31 per unit
D) $33 per unit
65) If outside customers demand 70,000 units, then according to the formula in the text, 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) $33 per unit
B) $27 per unit
C) $28 per unit
D) $29 per unit
66) Tommasino Products, Inc., has a Motor Division that manufactures and sells a number of
products, including a standard motor that could be used by another division in the company, the
Automotive Division, in one of its products. Data concerning that motor appear below:
Capacity in units
83,000
Selling price to outside customers
$
74
Variable cost per unit
$
22
Fixed cost per unit (based on capacity)
$
28
–
The Automotive Division is currently purchasing 9,000 of these motors per year from an
overseas supplier at a cost of $72 per motor.
Assume that the Motor Division has enough idle capacity to handle all of the Automotive
Division’s needs. Does there exist a transfer price that would make both the Motor and
Automotive Division financially better off than if the Automotive Division were to continue
buying its motors from the outside supplier?
A) Yes, both divisions are always better off regardless of whether the selling division has enough
idle capacity to handle all of the buying division’s needs.
B) No, the selling division’s price to outside customers is higher than the price that the buying
division has to pay its outside supplier.
C) Yes, the minimum transfer price that the selling division should be willing to accept is less
than the maximum transfer price that the buying division would accept.
D) The answer cannot be determined from the information that has been provided.
67) Tommasino Products, Inc., has a Motor Division that manufactures and sells a number of
products, including a standard motor that could be used by another division in the company, the
Automotive Division, in one of its products. Data concerning that motor appear below:
Capacity in units
83,000
Selling price to outside customers
$
74
Variable cost per unit
$
22
Fixed cost per unit (based on capacity)
$
28
–
The Automotive Division is currently purchasing 9,000 of these motors per year from an
overseas supplier at a cost of $72 per motor.
Assume that the Motor Division is selling all of the motors it can produce to outside customers.
Does there exist a transfer price that would make both the Motor and Automotive Division
financially better off than if the Automotive Division were to continue buying its motors from
the outside supplier?
A) The answer cannot be determined from the information that has been provided.
B) Yes, both divisions are always better off regardless of whether the selling division has enough
idle capacity to handle all of the buying division’s needs.
C) No, the minimum transfer price that the selling division should be willing to accept exceeds
the maximum transfer price that the buying division should be willing to accept.
D) Yes, the minimum transfer price that the selling division should be willing to accept is less
than the maximum transfer price that the buying division should be willing to accept.
68) Fingado Products, Inc., has a Detector Division that manufactures and sells a number of
products, including a standard detector that could be used by another division in the company,
the Commercial Security Division, in one of its products. Data concerning that detector appear
below:
Capacity in units
87,000
Selling price to outside customers
$
98
Variable cost per unit
$
32
Fixed cost per unit (based on capacity)
$
51
–
The Commercial Security Division is currently purchasing 6,000 of these detectors
per year from an overseas supplier at a cost of $91 per detector.
What is the maximum price that the Commercial Security Division should be willing to pay for
detectors transferred from the Detector Division?
A) $83 per unit
B) $51 per unit
C) $91 per unit
D) $32 per unit
69) Fingado Products, Inc., has a Detector Division that manufactures and sells a number of
products, including a standard detector that could be used by another division in the company,
the Commercial Security Division, in one of its products. Data concerning that detector appear
below:
Capacity in units
87,000
Selling price to outside customers
$
98
Variable cost per unit
$
32
Fixed cost per unit (based on capacity)
$
51
–
The Commercial Security Division is currently purchasing 6,000 of these detectors per year from
an overseas supplier at a cost of $91 per detector.
Assume that the Detector Division is selling all of the detectors it can produce to outside
customers. What should be the minimum acceptable transfer price for the detectors from the
standpoint of the Detector Division?
A) $32 per unit
B) $98 per unit
C) $91 per unit
D) $83 per unit
70) Fingado Products, Inc., has a Detector Division that manufactures and sells a number of
products, including a standard detector that could be used by another division in the company,
the Commercial Security Division, in one of its products. Data concerning that detector appear
below:
Capacity in units
87,000
Selling price to outside customers
$
98
Variable cost per unit
$
32
Fixed cost per unit (based on capacity)
$
51
–
The Commercial Security Division is currently purchasing 6,000 of these detectors per year from
an overseas supplier at a cost of $91 per detector.
Assume that the Valve Division is selling all of the valves it can produce to outside customers.
Also assume that $6 in variable expenses can be avoided on transfers within the company due to
reduced shipping and selling costs. What should be the minimum acceptable transfer price for
the valves from the standpoint of the Valve Division?
A) $92 per unit
B) $77 per unit
C) $91 per unit
D) $98 per unit
71) Ebbs Products, Inc., has a Motor Division that manufactures and sells a number of products,
including a standard motor. Data concerning that motor appear below:
Capacity in units
86,000
Selling price to outside customers
$
81
Variable cost per unit
$
43
Fixed cost per unit (based on capacity)
$
18
–
The Automotive Division of Ebbs Products, Inc needs 9,000 special heavy-duty motors per year.
The Motor Division’s variable cost to manufacture and ship this special motor would be $46 per
unit. Because these special motors require more manufacturing resources than the standard
motor, the Motor Division would have to reduce its production and sales of standard motors to
outside customers from 86,000 units per year to 72,500 units per year.
What is the total contribution margin on sales to outside customers that the Motor Division
would give up if it were to make the special motors for the Automotive Division?
A) $513,000
B) $342,000
C) $769,500
D) $1,093,500
Selling price to outside customers
$
Variable cost per unit
$
Unit contribution margin
$
Reduction in outside unit sales
Total contribution margin on lost sales
$
513,000
–
72) Ebbs Products, Inc., has a Motor Division that manufactures and sells a number of products,
including a standard motor. Data concerning that motor appear below:
Capacity in units
86,000
Selling price to outside customers
$
81
Variable cost per unit
$
43
Fixed cost per unit (based on capacity)
$
18
–
The Automotive Division of Ebbs Products, Inc needs 9,000 special heavy-duty motors per year.
The Motor Division’s variable cost to manufacture and ship this special motor would be $46 per
unit. Because these special motors would requires more manufacturing resources than the
standard motor, the Motor Division would have to reduce its production and sales of standard
motors to outside customers from 86,000 units per year to 72,500 units per year.
From the standpoint of the Motor Division, what is the minimal acceptable transfer price for the
special motors for the Automotive Division?
A) $84.00 per unit
B) $103.00 per unit
C) $81.00 per unit
D) $64.00 per unit
73) Ganus Products, Inc., has a Relay Division that manufactures and sells a number of products,
including a standard relay that could be used by another division in the company, the Electronics
Division, in one of its products. Data concerning that relay appear below:
Capacity in units
50,000
Selling price to outside customers
$
62
Variable cost per unit
$
20
Fixed cost per unit (based on capacity)
$
29
–
The Electronics Division is currently purchasing 7,000 of these relays per year from an overseas
supplier at a cost of $59 per relay.
Assume that the Relay Division is selling all of the relays it can produce to outside customers.
Does there exist a transfer price that would make both the Relay and Electronics Division
financially better off than if the Electronics Division were to continue buying its relays from the
outside supplier?
A) Yes, the minimum transfer price that the selling division should be willing to accept is less
than the maximum transfer price that the buying division should be willing to accept.
B) No, the minimum transfer price that the selling division should be willing to accept exceeds
the maximum transfer price that the buying division should be willing to accept.
C) Yes, both divisions are always better off regardless of whether the selling division has enough
idle capacity to handle all of the buying division’s needs.
D) The answer cannot be determined from the information that has been provided.
74) Ganus Products, Inc., has a Relay Division that manufactures and sells a number of products,
including a standard relay that could be used by another division in the company, the Electronics
Division, in one of its products. Data concerning that relay appear below:
Capacity in units
50,000
Selling price to outside customers
$
62
Variable cost per unit
$
20
Fixed cost per unit (based on capacity)
$
29
–
The Electronics Division is currently purchasing 7,000 of these relays per year from an overseas
supplier at a cost of $59 per relay.
Assume that the Valve Division is selling all of the valves it can produce to outside customers.
Also assume that $4 in variable expenses can be avoided on transfers within the company due to
reduced shipping and selling costs. Does there exist a transfer price that would make both the
Valve and Pump Division financially better off than if the Pump Division were to continue
buying its valves from the outside supplier?
A) No, the selling division’s price to outside customers is higher than the price that the buying
division has to pay its outside supplier.
B) The answer cannot be determined from the information that has been provided.
C) Yes, the minimum transfer price that the selling division should be willing to accept is less
than the maximum transfer price that the buying division would accept. Both divisions would be
financially better off if the transfers were to take place.
D) Yes, both divisions are always better off regardless of whether the selling division has enough
idle capacity to handle all of the buying division’s needs.
75) Two of the decentralized divisions of Gamberi Electronics Corporation are the Plastics
Division and the Components Division. The Plastics Division sells molded parts to both the
Components Division and to customers outside the corporation.
Assume that the Plastics Division is currently operating at full capacity. Also assume that the
Components Division wants to increase the number of parts it purchases from Plastics. In order
to maintain its current level of profitability, the Plastics Division should not accept any transfer
price on these additional parts that is below the:
A) variable cost of the additional parts.
B) full (absorption) cost of the additional parts.
C) variable cost of the additional parts plus the lost contribution margin on all units that could no
longer be sold to customers outside the corporation.
D) full (absorption) cost of the additional parts plus the lost contribution margin on all units that
could no longer be sold to customers outside the corporation.
76) Two of the decentralized divisions of Gamberi Electronics Corporation are the Plastics
Division and the Components Division. The Plastics Division sells molded parts to both the
Components Division and to customers outside the corporation.
Assume that the Plastics Division is currently operating with idle capacity. Also assume that the
Components Division wants to purchase from Plastics all of the additional parts that could be
made with this idle capacity. In order to increase its current level of profitability, the Plastics
Division should accept any transfer price on these additional parts that is above the:
A) variable cost of the additional parts.
B) full (absorption) cost of the additional parts.
C) variable cost of the additional parts plus the lost contribution margin on all units that could no
longer be sold to customers outside the corporation.
D) full (absorption) cost of the additional parts plus the lost contribution margin on all units that
could no longer be sold to customers outside the corporation.