Question :
11) TrueValue Company makes all types of office desks. The : 1212006
11) TrueValue Company makes all types of office desks. The General 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 General desk sells for $400.
The Executive Division wants to buy 5,000 desks at $270 for its custom office design business. The General 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 General Desk Division? Why?
b.From the perspective of the General 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?
12) The Microchip Division of Silicon Computers produces computer chips that are sold to the Personal Computer Division and to outsiders. Operating data for the Microchip 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 $8.90 each. The manager of Microchip Division is not willing to meet the $8.90 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 Microchip Division’s $9.00 unit cost figure.
b.Should the Microchip Division meet the outside price of $8.90? Explain.
c.Could the $8.60 price be met and still show a profit for the Microchip Division sales to the Personal Computer Division? Show computations.
13) Dual pricing is not widely used. Explain its disadvantages.
Objective 22.8
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) In the context of transfer pricing, which of the following represents the maximum contribution margin forgone by the selling subunit if the product or service is transferred internally?
A) sub-optimal transfer price
B) notional loss
C) compromise sale
D) opportunity cost
3) Which of the following denotes minimum transfer price?
A) Minimum transfer price = Incremental cost per unit incurred up to the point of transfer + Opportunity cost per unit to the selling subunit
B) Minimum transfer price = Total cost per unit incurred up to the point of transfer + Sunk cost per unit to the selling subunit
C) Minimum transfer price = Current cost per unit incurred up to the point of transfer + Historical cost per unit to the selling subunit
D) Minimum transfer price = Variable cost per unit incurred up to the point of transfer + Fixed cost per unit to the selling subunit
4) 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
5) The seller of Product A has no idle capacity and can sell all it can produce at $50 per unit. Outlay cost is $12. What is the opportunity cost, assuming the seller sells internally?
A) $12
B) $38
C) $50
D) $62
6) The seller of a product has no idle capacity and can sell all it can produce at $39 per unit. Outlay cost is $9. What is the opportunity cost, assuming the seller sells internally?
A) $9
B) $30
C) $39
D) $48
