21) A transfer-pricing method leads to goal congruence when managers: 21)

A) act in their own best interest and the decision is in the long-term best interest of the company

B) always act in their own best interest

C) act in their own best interest and the decision is in the long-term best interest of the

manager's subunit

D) act in their own best interest and the decision is in the short-term best interest of the company

 

22) The Fruit Drink 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. To reduce costs, the company

located an independent supplier in Tasmania who is willing to sell 30 000 containers at $20 each,

delivered to The Fruit Drink Company's Shipping Division in Tasmania. The company's Shipping

Division in Tasmania 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 The Fruit Drink Company if the carbonated water is

purchased from the local supplier?

22)

A) $900 000 B) $1 620 000 C) $1 200 000 D) $1 501 000

 

23) Area(s) which is/are usually appropriate for decentralised decision making is/are: 23)

A) product advertising B) long-term financing

C) sources of supplies and materials D) Both A and C are correct.

 

24) An advantage of using budgeted costs for transfer pricing among divisions is that: 24)

A) it usually provides a basis for optimal decision making

B) it promotes subunit autonomy

C) the divisions know the transfer price in advance

D) overall corporate profitability is usually higher

 

25) Penrith Chocolate Company makes internal transfers at 160% of full cost. The Dairy Milk Division

purchases 4000 litres of milk per day, on average, from a local supplier, who delivers the milk for

$2.00 per litre via an external shipper. To reduce costs, the company located an independent

supplier in Victoria who is willing to sell 4000 litres at $1.50 per litre, delivered to Penrith Chocolate

Company's Shipping Division in Penrith. The company's Shipping Division in Penrith has excess

capacity and can ship the 4000 litres at a variable cost of $0.45 per litre. What is the total cost of

purchasing the milk from the Victorian supplier and shipping it to the Dairy Milk Division?

25)

A) $6000 B) $7800 C) $8000 D) $12 480

 

26) All of the following are benefits of decentralisation EXCEPT that it: 26)

A) decreases management and worker morale

B) sharpens the focus of managers

C) creates greater responsiveness to local needs

D) leads to quicker decision making

 

Answer the following questions using the information below:

The Betashoe Company manufactures shoes. It has two divisions: the Sole Division and the Assembly Division. The Sole

Division manufactures soles for the Assembly Division, which completes the manufacturing of the shoes and sells the

completed product to retailers. The Sole Division 'sells' pairs of soles to the Assembly Division. The market price for the

Assembly Division to purchase a pair of soles is $20. (Ignore changes in inventory.) The fixed costs for the Sole Division are

assumed to be the same over the range of 40 000-100 000 units. The fixed costs for the Assembly Division are assumed to be

$7 per pair of shoes at 100 000 units.

Costs per pair of soles are:

Direct materials $4

Direct labour $3

Variable overhead $2

Division fixed costs $1

Assembly's costs per completed pair of shoes are:

Direct materials $6

Direct labour $2

Variable overhead $1

Division fixed costs $7

27) Calculate and compare the difference in overall corporate net profit between Scenario A and

Scenario B if the Assembly Division sells 100 000 pairs of shoes for $60 per pair to customers.

Scenario A: Negotiated transfer price of $15 per pair of soles

Scenario B: Market-based transfer price

27)

A) $500 000 of net profit using Scenario B

B) $500 000 more net profit under Scenario A

C) $100 000 of net profit using Scenario A

D) None of these answers are correct.

 

Answer the following questions using the information below:

Calculate the Division operating profit for the Don's Cricket Bat Company which manufactures cricket bats. It has two

divisions: the Bat Blade Division and the Assembly Division. The Bat Blade Division manufactures blades for the Assembly

Division, which splices handles to the baldes and sells the completed bats to retailers. The Bat Blade Division 'sells' blades to

the Assembly Division. The market price for the Assembly Division to purchase a blade is $40. (Ignore changes in inventory.)

The fixed costs for the Bat Blade Division are assumed to be the same over the range of 20 000-50 000 units. The fixed costs

for the Assembly Division are assumed to be $14 per bat at 50 000 units.

Costs per blade are:

Direct materials $8

Direct labour $6

Variable overhead $4

Division fixed costs $2

Assembly's costs per completed bat are :

Direct materials $12

Direct labour $4

Variable overhead $1

Division fixed costs $14

28) Assume the transfer price for a blade is 180% of total costs of the Bat Blade Division and 40 000

blades are produced and transferred to the Assembly Division. The Bat Blade Division's operating

profit is:

28)

A) $640 000 B) $720 000 C) $880 000 D) $800 000

 

29) If an oil refinery used refinery down-time as a Balanced Scorecard control measure, it would

represent the ________ perspective.

29)

A) learning and growth B) customer

C) financial D) internal business process

 

Answer the following questions using the information below:

Calculate the Division operating profit for the Cool Air Company which manufactures only one type of air conditioner and

has two divisions: the Compressor Division and the Assembly Division. The Compressor Division manufactures compressors

for the Assembly Division, which completes the air conditioner and sells it to retailers. The Compressor Division 'sells'

compressors to the Assembly Division. The market price for the Assembly Division to purchase a compressor is $77. (Ignore

changes in inventory.) The fixed costs for the Compressor Division are assumed to be the same over the range of 5000-10 000

units. The fixed costs for the Assembly Division are assumed to be $15.00 per unit at 10 000 units.

Compressor's costs per compressor are:

Direct materials $34.00

Direct labour $14.50

Variable overhead $6.00

Division fixed costs $15.00

Assembly's costs per completed air conditioner are:

Direct materials $300.00

Direct labour $125.00

Variable overhead $40.00

Division fixed costs $15.00

30) What is the transfer price per compressor from the Compressor Division to the Assembly Division

if the transfer price per compressor is 110% of full costs?

30)

A) $84.70 B) $80.00

C) $76.45 D) None of these are correct.

 

 

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