Question : 6) Dual pricing widely used as it reduces the goal-congruence : 1186213

 

6) Dual pricing is widely used as it reduces the goal-congruence problems associated with a pure cost-plus based transfer-pricing method.

 

7) Opportunity costs represent the cash flows directly associated with the production and transfer of the products and services.

 

8) 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.

Use the information below to answer the following question(s).

 

Soft Cushion Company is highly decentralized. Each division is empowered to make its own sales decisions. The Assembly Division can purchase a key component-stuffing-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 kilogram 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, fixed cost $8, to top management in order to attempt to force the Assembly Division to purchase the stuffing internally. The Assembly Division purchases 20,000 kg per month.

 

9) The Production Division has no alternative use for the facilities used to manufacture the stuffing. What is the monthly operating income advantage (disadvantage) if the goods are purchased internally?

A) $400,000

B) $640,000

C) $240,000

D) $(240,000)

E) $(400,000)

 

10) What is the monthly operating advantage (disadvantage) of purchasing the goods internally assuming the Production Division is able to utilize the facilities for other operations resulting in monthly cash-operating savings of $40,000?

A) $400,000

B) $40,000

C) $(240,000)

D) $(280,000)

E) $(400,000)

11) What would be the monthly operating advantage (disadvantage) of purchasing the goods internally assuming the external supplier increased its price to $50 per kilogram and the Production Division is able to utilize facilities for other operations, resulting in a monthly cash-operating savings of $30 per kilogram?

A) $1,000,000

B) $360,000

C) $(240,000)

D) $(400,000)

E) $(640,000)

 

12) In analyzing transfer prices

A) the buyer will not willingly purchase a product for less than the incremental costs incurred to manufacture the product internally.

B) the seller should not sell a product for less than the incremental costs incurred to make the product.

C) the buyer will willingly pay more than the ceiling transfer price.

D) the buyer will not pay less than the ceiling transfer price.

E) the buyer will not pay the incremental costs.

 

13) Cash outflows that are directly associated with the production and transfer of the products and services are called

A) additional costs.

B) opportunity costs.

C) outlay costs.

D) transfer costs.

E) variable costs.

14) The profit foregone by the seller if the products or services are transferred internally instead of selling them externally are called

A) additional costs.

B) opportunity costs.

C) outlay costs.

D) transfer costs.

E) variable costs.

 

15) The seller of product A has no idle capacity and can sell all it can produce at $20 per unit. Outlay cost is $4. What is the opportunity cost assuming the seller sells internally?

A) $4

B) $16

C) $20

D) $24

E) $44

 

 

 

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