Responsibility Accounting and Performance Measures Paper 10

1

Bonnertís Finance Department has purchased a new color copier system for $10,000 that will help with required reporting. Bonnertís IT Department was planning to purchase a similar system for an additional $10,000 but has realized that there are enough system resources from the Finance Departmentís purchase that both groups can share the new equipment equally. In order to fairly allocate the common cost of the equipment, the controller should use the .






2

An appropriate transfer price between two divisions of The Stark Company can be determined from the following data:
Fabricating Division:
Market price of subassembly $50
Variable cost of subassembly $20
Excess capacity (in units) 1,000
Assembling Division:
Number of units needed 900
What is the natural bargaining range for the two divisions?






3

A limitation of transfer prices based on actual cost is that they






4

A proposed transfer price may be based upon the full-cost price. Full-cost price is the price






5

Division Z of a company produces a component that it currently sells to outside customers for $20 per unit. At its current level of production, which is 60% of capacity, Division Zís fixed cost of producing this component is $5 per unit and its variable cost is $12 per unit. Division Y of the same company would like to purchase this component from Division Z for $10. Division Z has enough excess capacity to fill Division Yís requirements. The managers of both divisions are compensated based upon reported profits. Which of the following transfer prices will maximize total company profits and be most equitable to the managers of Division Y and Division Z?






6

Division A of a company is currently operating at 50% capacity. It produces a single product and sells all its production to outside customers for $13 per unit. Variable costs are $7 per unit, and fixed costs are $6 per unit at the current production level. Division B, which currently purchases this product from an outside supplier for $12 per unit, would like to purchase the product from Division A. Division A will operate at 80% capacity to meet outside customersí and Division Bís demand. What is the minimum price that Division A should charge Division B for this product?






7

Which of the following is not true about international transfer prices for a multinational firm?






8

A variable-cost-plus price transfer is






9

Which one of the following is an incorrect description of transfer pricing?






10

With respect to a firmís transfer pricing policy, an advantage of using a dual pricing arrangement is that it






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