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98.
Some managers prefer to use cost rather than market price in controlling transfers
between divisions. If cost is to be used, then it should be:
99.
Cost-based transfer prices that include a normal markup to the costs act as a surrogate
for:
100.
Multinational firms often face conflicting pressures when developing transfer pricing
policies. Tax avoidance results when:
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101.
Which of the following transfer pricing methods must be used in segment reporting by the
oil and gas industry?
Essay Questions
102.
103.
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104.
Trevor Company operates several investment centers. The manager of the Genesis
Division expects the following results for the coming year.
Sales (50,000 units at $20)
$1,000,000
Variable costs
600,000
Contribution margin
$400,000
Fixed costs
250,000
Profit
$150,000
105.
The Trevor Company operates several investment centers. The manager of the Genesis
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Division expects the following results for the coming year.
Sales (50,000 units at $20)
$1,000,000
Variable costs
600,000
Contribution margin
$400,000
Fixed costs
250,000
Profit
$150,000
106.
The Barrel Division of Chemco Inc. has a capacity of 200,000 units and expects the
following results.
Sales (160,000 units at $4)
$640,000
Variable costs, at $2
320,000
Fixed costs
260,000
Income
$60,000
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107.
Division A of Spangler Company expects the following results:
To
Division
B
To
Outsiders
Sales (5,000 × $60)
$300,000
(25,000 × $72)
$1,800,000
Variable costs at $36
180,000
900,000
Contribution margin
$120,000
$900,000
Fixed costs, all common,
allocated on the basis of
relative units
60,000
300,000
Profit
$60,000
$600,000
108.
Veritron Division of Argos Inc. has a capacity of 100,000 units and expects the following
results for the year.
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Sales (90,000 units at $30)
$2,700,000
Variable costs, at $20
1,800,000
Fixed costs
700,000
Income
$200,000
109.
Division A of Spangler Company expects the following results:
To
Division
B
To
Outsiders
Sales (5,000 × $60)
$300,000
(25,000 × $60)
$1,500,000
Variable costs at $36
180,000
900,000
Contribution margin
$120,000
$600,000
Fixed costs, all common,
allocated on the basis of
relative units
60,000
300,000
Profit
$60,000
$300,000
110.
111.
112.
113.
Salamander Company expects the following results:
Division A
Division B
Sales A: (10,000 × $160)
$1,600,000
B: (25,000 × $72)
$1,800,000
Variable costs
1,360,000
900,000
Contribution margin
$240,000
$900,000
Fixed costs
160,000
360,000
Profit
$80,000
$540,000
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114.
The Salamander Company expects the following results:
Division A
Division B
Sales A: (10,000 × $160)
$1,600,000
B: (25,000 × $72)
$1,800,000
Variable costs
1,360,000
900,000
Contribution margin
$240,000
$900,000
Fixed costs
160,000
360,000
Profit
$80,000
$540,000
15-99
115.
Thai Company has two divisions organized as profit centers: Redmon and Tomlin. Thai
expects the following results:
Redmon
Tomlin
Sales
Redmon: (10,000 ×
$16)
$1,600,000
Tomlin: (250,000 ×
$7.20)
$1,800,000
Variable costs
1,360,000
1,000,000
Contribution margin
$240,000
$800,000
Fixed costs
160,000
460,000
Profit
$80,000
$340,000
116.
Macon Motor Works has just acquired a new Battery Division. The Battery Division
produces a standard 12-volt battery that it sells to retail outlets at a competitive price of
$20. The retail outlets purchase about 800,000 batteries a year. Since the Battery Division
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has a capacity of 1,000,000 batteries a year, top management is thinking that it might be
wise for the company's Automotive Division to start purchasing batteries from the newly
acquired Battery Division.
The Automotive Division now purchases 300,000 batteries a year from an outside
supplier, at a price of $18 per battery. The discount from the competitive $20 price is a
result of the large quantity purchased.
The Battery Division's cost per battery is shown below:
Direct materials
$8
Direct labor
4
Variable overhead
2
Fixed overhead
2
Total cost
$16
