Question : 31) For each of the following statements regarding the satisfaction : 1212000

31) For each of the following statements regarding the satisfaction of transfer pricing criteria, identify whether you would expect the transfer pricing method to meet the criteria. Provide a yes, no, or sometimes for each situation.

________a.Market-Based transfer pricing achieves goal congruence.

________b.Cost-Based transfer pricing achieves goal congruence.

________c.Negotiated transfer pricing achieves goal congruence.

________d.Market-Based transfer pricing motivates management effort.

________e.Cost-Based transfer pricing motivates management effort.

________f.Negotiated transfer pricing motivates management effort.

________g.Market-Based transfer pricing is useful for evaluating subunit performance.

________h.Cost-Based transfer pricing is useful for evaluating subunit performance.

________i.Negotiated transfer pricing is useful for evaluating subunit performance.

________j.Market-Based transfer pricing preserves subunit autonomy.

________k.Cost-Based transfer pricing preserves subunit autonomy.

________l.Negotiated transfer pricing preserves subunit autonomy.

32) The Mill Flow Company has two divisions. The Cutting Division prepares timber at its sawmills. The Coating Division prepares the cut lumber into finished wood for the furniture industry. No inventories exist in either division at the beginning of 20X5. During the year, the Cutting Division prepared 60,000 cords of wood at a cost of $660,000. All the lumber was transferred to the Coating Division, where additional operating costs of $5 per cord were incurred. The 600,000 boardfeet of finished wood were sold for $2,500,000.

Required:

a.Determine the operating income for each division if the transfer price from Cutting to Coating is at cost – $11 a cord.

b.Determine the operating income for each division if the transfer price is $9 per cord.

c.Since the Cutting Division sells all of its wood internally to the Coating Division, does the manager care what price is selected? Why? Should the Cutting Division be a cost center or a profit center under the circumstances?

33) Sandra’s Sheet Metal Company has two divisions. The Raw Material Division prepares sheet metal at its warehouse facility. The Finishing Division prepares the cut sheet metal into finished products for the air conditioning industry. No inventories exist in either division at the beginning of 20X8. During the year, the Raw Material Division prepared 450,000 square feet of sheet metal at a cost of $1,800,000. All the sheet metal was transferred to the Finishing Division, where additional operating costs of $1.50 per square foot were incurred. The 450,000 square feet of finished fabricated sheet metal products were sold for $3,875,000.

Required:

a.Determine the operating income for each division if the transfer price from Raw Material to Finishing is at a cost of $4 per square foot.

b.Determine the operating income for each division if the transfer price is $6 per square foot.

c.Since the Raw Materials Division sells all of its sheet metal internally to the Finishing Division, does the Raw Materials manager care what price is selected? Why? Should the Raw Materials Division be a cost center or a profit center under the circumstances?

34) Bedtime Bedding Company manufactures pillows. The Cover Division makes covers and the Assembly Division makes the finished products. The covers can be sold separately for $5.00. The pillows sell for $6.00. The information related to manufacturing for the most recent year is as follows:

Cover Division manufacturing costs

$6,000,000

Sales of covers by Cover Division

4,000,000

Market value of covers transferred to Assembly

6,000,000

Sales of pillows by Assembly Division

7,200,000

Additional manufacturing costs of Assembly Division

1,500,000

Required:

Compute the operating income for each division and the company as a whole. Use market value as the transfer price. Are all managers happy with this concept? Explain.