Question : 5) One major advantage of negotiated transfer pricing that it : 1217121

5) One major advantage of negotiated transfer pricing is that it can be done with little time or effort.

6) The Home Office Company makes all types of office desks. The Computer Desk Division is currently producing 10,000 desks per year with a capacity of 15,000. The variable costs assigned to each desk are $300 and annual fixed costs of the division are $900,000. The computer desk sells for $400.

The Executive Division wants to buy 5,000 desks at $280 for its custom office design business. The Computer Desk manager refused the order because the price is below variable cost. The executive manager argues that the order should be accepted because it will lower the fixed cost per desk from $90 to $60 and will take the division to its capacity, thereby causing operations to be at their most efficient level.

Required:

a.Should the order from the Executive Division be accepted by the Computer Desk Division? Why?

b.From the perspective of the Computer Desk Division and the company, should the order be accepted if the Executive Division plans on selling the desks in the outside market for $420 after incurring additional costs of $100 per desk?

c.What action should the company president take?

7) The Micro Division of Silicon Computers produces computer chips that are sold to the Personal Computer Division and to outsiders. Operating data for the Micro Division for 20X5 are as follows:

Internal Sales

External Sales

Sales:

   300,000 chips at $10

$3,000,000

   200,000 chips at $12

$2,400,000

Variable expenses at $4

1,200,000

800,000

Contribution margin

$1,800,000

$1,600,000

Fixed cost (allocated in units)

1,500,000

1,000,000

Operating income

$ 300,000

$ 600,000

The Personal Computer Division has just received an offer from an outside supplier to furnish chips at $8.60 each. The manager of Micro Division is not willing to meet the $8.60 price. She argues that it costs her $9.00 to produce and sell each chip. Sales to outside customers are at a maximum of 200,000 chips.

Required:

a.Verify the Micro Division’s $9.00 unit cost figure.

b.Should the Micro Division meet the outside price of $8.60? Explain.

c.Could the $8.60 price be met and still show a profit for the Micro Division sales to the Personal Computer Division? Show computations.

Objective 22.7

1) Which of the following transfer-pricing methods always achieves goal congruence?

A) a market-based transfer price

B) a cost-based transfer price

C) a negotiated transfer price

D) full-cost plus a standard profit margin

2) Which of the following transfer-pricing methods preserves sub-unit autonomy?

A) market-based transfer pricing

B) cost-based transfer pricing

C) negotiated transfer pricing

D) Both A and C are correct.

3) The minimum transfer price equals:

A) opportunity costs less the additional outlay costs

B) opportunity costs times 125% plus the additional outlay costs

C) opportunity costs divided by the additional outlay costs

D) incremental costs plus opportunity costs

4) The seller of Product A has no idle capacity and can sell all it can produce at $60 per unit. Outlay cost is $12. What is the opportunity cost, assuming the seller sells internally?

A) $12

B) $48

C) $60

D) $72