61) The benefits of a decentralised organisation are greater when a company: 61)
A) has few interdependencies among divisions
B) is large and unregulated
C) is facing great uncertainties in their environment
D) All of these answers are correct.
62) ________ means minimum constraints and maximum freedom for managers at the lowest levels of
an organisation to make decisions and to take actions.
62)
A) Use of negotiated transfer pricing B) Use of market-based transfer pricing
C) Total decentralisation D) Total centralisation
Answer the following questions using the information below:
Division A sells soybean paste internally to Division B, which in turn, produces soybean burgers that sell for $5 per kilo.
Division A incurs costs of $0.75 per kilo while Division B incurs additional costs of $2.50 per kilo.
63) Which of the following formulas correctly reflects the company's operating profit per kilo? 63)
A) $5.00 – ($0.25 + $1.25 + $3.50) = 0 B) $5.00 – ($0.75 + $3.75) = $0.50
C) $5.00 – ($0.75 + $2.50) = $1.75 D) $5.00 – ($1.25 + $2.50) = $1.25
64) Exertion towards a goal is: 64)
A) effort B) incentive
C) goal congruence D) motivation
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
65) What is the transfer price per blade from the Bat Blade Division to the Assembly Division per blade
if the transfer price per blade is 125% of full costs?
65)
A) $30 B) $25 C) $20 D) $26
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
66) What is the market-based transfer price per pair of soles from the Sole Division to the Assembly
Division?
66)
A) $10 B) $16 C) $20 D) $26
Answer the following questions using the information below:
Division A sells soybean paste internally to Division B, which in turn, produces soybean burgers that sell for $5 per kilo.
Division A incurs costs of $0.75 per kilo while Division B incurs additional costs of $2.50 per kilo.
67) What is Division A's operating profit per kilo, assuming the transfer price of the soybean paste is
set at $1.25 per kilo?
67)
A) $0.500 B) $1.625 C) $1.250 D) $0.875
68) The Fruit Drink Company makes internal transfers at 160% of full cost. The Soda Refining Division
purchases 40 000 containers of carbonated water per day, on average, from a local supplier, who
delivers the water for $40 per container via an external shipper. To reduce costs, the company
located an independent supplier in Victoria who is willing to sell 40 000 containers at $30 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 40 000 containers at a variable cost of
$4.50 per container. What is the total cost of purchasing the water from the Victorian supplier and
shipping it to the Soda Division?
68)
A) $1 600 000 B) $1 380 000 C) $1 200 000 D) $180 000
69) The seller of a product has no idle capacity and can sell all it can produce at $11 per unit. Outlay
cost is $3. Assuming the seller can sell internally, what is the opportunity cost?
69)
A) $2 B) $4 C) $8 D) $11
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
70) Assume the transfer price for a pair of soles is 180% of total costs of the Sole Division and 40 000
pairs of soles are produced and transferred to the Assembly Division. The Sole Division's operating
profit is:
70)
A) $320 000 B) $400 000 C) $440 000 D) $360 000
Answer the following questions using the information below:
Bass Strait Oil Corporation has two divisions: Refining and Production. The company's primary product is Enkoil Oil. Each
division's costs are provided below:
Production: Variable costs per barrel of oil $3
Fixed costs per barrel of oil $2
Refining: Variable costs per barrel of oil $10
Fixed costs per barrel of oil $12
The Refining Division has been operating at a capacity of 40 000 barrels a day and usually purchases 25 000 barrels of oil
from the Production Division and 15 000 barrels from other suppliers at $20 per barrel.
71) Assume 200 barrels are transferred from the Production Division to the Refining Division for a
transfer price of $6 per barrel. The Refining Division sells the 200 barrels at a price of $40 each to
customers. What is the operating profit of both divisions together?
71)
A) $6800 B) $2600 C) $2400 D) $3600
Answer the following questions using the information below:
NSW Farmers Coop has two divisions: Distribution and Production. The company's primary product is fertiliser. Each
division's costs are provided below:
Production: Variable costs per kilo $0.05
Fixed costs per kilo $0.25
Distribution: Variable costs per kilo $0.03
Fixed costs per kilo $0.02
The Distribution Division has been operating at a capacity of 4 000 000 kilos a week and usually purchases 2 000 000 kilos
from the Production Division and 2 000 000 kilos from other suppliers at $0.45 per kilo.
72) What is the transfer price per kilo from the Production Division to the Distribution Division,
assuming the method used to place a value on each kilo of fertiliser is 120% of full costs?
72)
A) $0.55 B) $0.36 C) $0.45 D) $0.30
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