Question :
5) The seller of a product has no idle capacity : 1217122
5) The seller of a product has no idle capacity and can sell all it can produce at $33 per unit. Outlay cost is $9. What is the opportunity cost, assuming the seller sells internally?
A) $6
B) $12
C) $24
D) $33
6) In analyzing transfer prices, the:
A) buyer will not willingly purchase a product for less than the incremental costs incurred to manufacture the product internally
B) seller will not willingly sell a product for less than the incremental costs incurred to make the product
C) buyer will willingly pay more than the ceiling transfer price
D) buyer will not pay less than the ceiling transfer price
7) Opportunity costs represent the cash flows directly associated with the production and transfer of the products and services.
8) Market-based transfer prices are ideal when there is no idle capacity.in the selling division.
9) If the product sold between divisions has no intermediate market, the opportunity cost of supplying the product internally is the variable cost of the product.
10) The Assembly Division of American Car Company has offered to purchase 90,000 batteries from the Electrical Division for $104 per unit. At a normal volume of 250,000 batteries per year, production costs per battery are as follows:
Direct materials
$ 40
Direct manufacturing labor
20
Variable factory overhead
12
Fixed factory overhead
40
Total
$112
The Electrical Division has been selling 250,000 batteries per year to outside buyers at $136 each; capacity is 350,000 batteries per year. The Assembly Division has been buying batteries from outside sources for $130 each.
Required:
a.Should the Electrical Division manager accept the offer? Explain.
b.From the company’s perspective, will the internal sales be of any benefit? Explain.
Objective 22.8
1) Soft Cushion Company is highly decentralized. Each division is empowered to make its own sales decisions. The Assembly Division can purchase stuffing, a key component, from the Production Division or from external suppliers. The Production Division has been the major supplier of stuffing in recent years. The Assembly Division has announced that two external suppliers will be used to purchase the stuffing at $20 per pound for the next year. The Production Division recently increased its unit price to $40. The manager of the Production Division presented the following information ? variable cost $32 and fixed cost $8 ?t o top management in order to attempt to force the Assembly Division to purchase the stuffing internally. The Assembly Division purchases 20,000 pounds of stuffing per month.
What would be the monthly operating advantage (disadvantage) of purchasing the goods internally, assuming the external supplier increased its price to $50 per pound and the Production Division is able to utilize the facilities for other operations, resulting in a monthly cash-operating savings of $30 per pound?
A) $1,000,000
B) $360,000
C) $(240,000)
D) $(400,000)
2) One of the problems in using one set of accounting records for tax reporting and another set of records for internal management reporting is:
A) it is illegal
B) tax authorities may suspect manipulation of records
C) it is almost impossible to keep the records straight and hard to reconcile the books
D) Both A and B are correct.
3) Section 482 of the U.S. Internal Revenue Code governing the taxation of multinational transfer pricing recognizes that transfer prices can be:
A) market based
B) negotiated
C) cost-plus based
D) Both A and C are correct.
4) A(n) ________ is a binding agreement between a multinational and the United States Internal Revenue Service to obtain approval for a specific transfer price for a number of years.
A) Tax Treaty
B) Advanced Pricing Agreement
C) Revenue Ruling
D) Dual Price Ruling
5) Global Giant, a multinational corporation, has a producing subsidiary in a low tax rate country and a marketing subsidiary in a high tax country. If Global Giant wants to minimize its worldwide tax liability, we would expect Global Giant to:
A) stop producing in the low tax rate country
B) stop marketing in the high tax rate country
C) establish a low transfer price when the producing unit sells to the marketing unit
D) establish a high transfer price when the producing unit sells to the marketing unit
