Question : 116.All of the following correct statements about the market-based approach : 1311808

116.All of the following are correct statements about the market-based approach except that it

a.assumes that the transfer price should be based on the most objective inputs possible.

b.provides a fairer allocation of the company’s contribution margin to each division.

c.produces a higher company contribution margin than the cost-based approach.

d.ensures that each division manager is properly motivated and rewarded.

117.The negotiated transfer price approach should be used when

a.the selling division has available capacity and is willing to accept less than the market price.

b.an outside market for the goods does not exist.

c.no market price is available.

d.any of these situations exist.

118.Assuming the selling division has available capacity, a negotiated transfer price should be within the range of

a.fixed cost per unit and the external purchase price.

b.total cost per unit and the external purchase price.

c.variable cost per unit and the external purchase price.

d.variable cost per unit and the opportunity cost.

119.The transfer price approach that will result in the largest contribution margin to the buying division is the

a.cost-based approach.

b.market-based approach.

c.negotiated price approach.

d.time-and-material pricing approach.

120.The maximum transfer price from the buying division’s standpoint is the

a.total cost + opportunity cost.

b.variable cost + opportunity cost.

c.external purchase price.

d.external purchase price + opportunity cost.

121.The Wood Division of Fir Products, Inc. manufactures rubber moldings and sells them externally for $55. Its variable cost is $25 per unit, and its fixed cost per unit is $7. Fir’s president wants the Wood Division to transfer 5,000 units to another company division at a price of $32. Assuming the Wood Division has available capacity of 5,000 units, the minimum transfer price it should accept is

a.$7.

b.$25.

c.$32.

d.$55.

122.The Wood Division of Fir Products, Inc. manufactures rubber moldings and sells them externally for $55. Its variable cost is $25 per unit, and its fixed cost per unit is $7. Fir’s president wants the Wood Division to transfer 5,000 units to another company division at a price of $32. Assuming the Wood Division does not have any available capacity, the minimum transfer price it should accept is

a.$7.

b.$25.

c.$32.

d.$55.

123.Management of the Catering Company would like the Food Division to transfer 10,000 cans of its final product to the Restaurant Division for $30. The Food Division sells the product to customers for $70 per unit. The Food Division’s variable cost per unit is $35 and its fixed cost per unit is $10. If the Food Division is currently operating at full capacity, what is the minimum transfer price the Food Division should accept?

a.$30

b.$35

c.$45

d.$70

124.Management of the Catering Company would like the Food Division to transfer 10,000 cans of its final product to the Restaurant Division for $30. The Food Division sells the product to customers for $70 per unit. The Food Division’s variable cost per unit is $35 and its fixed cost per unit is $10. If the Food Division has 10,000 units available capacity, what is the minimum transfer price the Food Division should accept?

a.$30

b.$35

c.$45

d.$70

125.All of the following are correct statements about transfers between divisions located in countries with different tax rates except that

a.differences in tax rates across countries complicate the determination of the appro-priate transfer price.

b.many companies prefer to report more income in countries with low tax rates.

c.companies must pay income tax in the country where income is generated.

d.a decreasing number of transfers are between divisions located in different countries.