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| 1 | |
When evaluating the performance of a profit centre manager, he or she should be evaluated on: |
| | A) | all revenues and costs that can be directly traced to the profit centre |
| | B) | all revenues and variable costs incurred by the profit centre |
| | C) | all revenues, costs and assets under his or her control |
| | D) | all revenues and costs under his or her control |
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| 2 | |
When using cost-based transfer prices, which costs should be used? |
| | A) | Actual costs. |
| | B) | Actual absorption costs. |
| | C) | Standard costs. |
| | D) | Actual variable costs. |
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| 3 | |
The general rule for transfer pricing that promotes goal congruence is: |
| | A) | transfer price = additional variable costs per unit incurred by the supplying division + opportunity cost per unit to the supplying division |
| | B) | transfer price = additional outlay costs per unit incurred by the supplying division + opportunity cost per unit to the buying division |
| | C) | transfer price = additional outlay costs per unit incurred by the buying division + opportunity cost per unit to the buying division |
| | D) | transfer price = additional outlay costs per unit incurred by the supplying division + opportunity cost per unit to the supplying division |
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| 4 | |
Calming Essences Limited has two divisions-Refining and Production. The company’s primary product is lavender oil, which is used in the perfume and cosmetics industries. Each division’s standard costs are provided below: Refining Division | Variable costs per litre of oil | $100 |
| Fixed costs per litre of oil | $80 | Production | Variable costs per litre of oil | $20 |
| Fixed costs per litre of oil | $10 |
The Production Division is able to sell the oil to outside customers for $30 per litre. The Refining Division has been operating at a capacity of 1000 litres per day, using oil from the Production Division and oil purchased from other suppliers. The Refining Division on average purchases 750 litres of oil per day from the Production Division, and 250 litres per day from other suppliers at $35 per litre.
If the transfer price is set at standard variable cost plus a mark-up of 60%, the transfer price per litre of oil from the Production Division to the Refining Division is: |
| | A) | $30 |
| | B) | $32 |
| | C) | $36 |
| | D) | $100 |
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| 5 | |
Calming Essences Limited has two divisions-Refining and Production. The company’s primary product is lavender oil, which is used in the perfume and cosmetics industries. Each division’s standard costs are provided below: Refining Division | Variable costs per litre of oil | $100 |
| Fixed costs per litre of oil | $80 | Production | Variable costs per litre of oil | $20 |
| Fixed costs per litre of oil | $10 |
The Production Division is able to sell the oil to outside customers for $30 per litre. The Refining Division has been operating at a capacity of 1000 litres per day, using oil from the Production Division and oil purchased from other suppliers. The Refining Division on average purchases 750 litres of oil per day from the Production Division, and 250 litres per day from other suppliers at $35 per litre.
If the transfer price is set at standard absorption costs plus a mark-up of 20%, the transfer price per litre of oil from the Production Division to the Refining Division is: |
| | A) | $30 |
| | B) | $32 |
| | C) | $36 |
| | D) | $180 |
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| 6 | |
Calming Essences Limited has two divisions-Refining and Production. The company’s primary product is lavender oil, which is used in the perfume and cosmetics industries. Each division’s standard costs are provided below: Refining Division | Variable costs per litre of oil | $100 |
| Fixed costs per litre of oil | $80 | Production | Variable costs per litre of oil | $20 |
| Fixed costs per litre of oil | $10 |
The Production Division is able to sell the oil to outside customers for $30 per litre. The Refining Division has been operating at a capacity of 1000 litres per day, using oil from the Production Division and oil purchased from other suppliers. The Refining Division on average purchases 750 litres of oil per day from the Production Division, and 250 litres per day from other suppliers at $35 per litre.
If the transfer price is set at market-based prices, the transfer price per litre of oil from the Production Division to the Refining Division is:
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| | A) | $30 |
| | B) | $31 |
| | C) | $32 |
| | D) | $35 |
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| 7 | |
Starr Company has two divisions, X and Y. The X Division produces a single product that can be sold to outside customers or to the Y Division. Sales forecasts, production statistics and costs for both divisions for the current year are shown below: X Division |
| Outside customer demand | 60 000 units | Y Division demand | 30 000 units | Market price per unit | $100 | Variable manufacturing cost per unit | $60 | Variable selling costs per unit* | $10 | Fixed manufacturing costs | $1 200 000 | Annual capacity | 80 000 units | Y Division |
| Customer demand | 30 000 units | Market price per unit | $500 | Variable manufacturing cost per unit (not including any transfer from X) | $200 | Variable selling costs per unit | $50 | Fixed manufacturing costs | $750 000 | Annual capacity | 30 000 units |
* When X Division sells to Y Division, X Division incurs zero variable selling costs.
Using the general transfer pricing formula, the minimum per unit transfer price that X Division should charge Y Division in the current year is: |
| | A) | $100 |
| | B) | $85 |
| | C) | $70 |
| | D) | $60 |
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| 8 | |
If there is an external market and no excess capacity in the supplying division, using the general transfer pricing rule, the transfer price will be the same as: |
| | A) | the variable manufacturing cost |
| | B) | the market price |
| | C) | the variable manufacturing cost plus mark-up |
| | D) | the opportunity cost plus incremental |
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| 9 | |
Comfy Cushion Company manufactures cushions. The Cover Division manufactures cushion covers and the Production Department manufactures the cushion inserts. The cushion covers can be sold separately for $12.50. The Production Department has no excess capacity. The cushion inserts variable manufacturing cost per unit is $5.50 and they can be sold in the external market for $9.50 each.
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The transfer price per unit for the cushion inserts using the general transfer pricing rule is: |
| | A) | $5.50 |
| | B) | $9.50 |
| | C) | $12.50 |
| | D) | $18 |
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| 10 | |
Products that have no market outside the company and are processed further to become final products are: |
| | A) | semi-completed products |
| | B) | work in process products |
| | C) | finished goods |
| | D) | intermediate products |
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