Question : Objective 22.6 1) When companies do not want to use market : 1212003

Objective 22.6

1) When companies do not want to use market prices or find it too costly, they typically use ________ prices, even though suboptimal decisions may occur.

A) average-cost

B) full-cost

C) long-run cost

D) short-run average cost

2) Aerated Water Company makes internal transfers at 180% of full cost. The Soda Refining Division purchases 30,000 containers of carbonated water per day, on average, from a local supplier, who delivers the water for $30 per container via an external shipper. To reduce costs, the company located an independent supplier in Missouri who is willing to sell 30,000 containers at $22 each, delivered to Aerated Water Company’s Shipping Division in Missouri. The company’s Shipping Division in Missouri has excess capacity and can ship the 30,000 containers at a variable cost of $1.50 per container. What is the total cost to Aerated Water Company if the carbonated water is purchased from the local supplier?

A) $900,000

B) $1,200,000

C) $1,501,000

D) $1,620,000

3) Crush Company makes internal transfers at 160% of full cost. The Soda Refining Division purchases 40,000 containers of carbonated water per day, on average, from a local supplier, who delivers the water for $40 per container via an external shipper. To reduce costs, the company located an independent supplier in Illinois who is willing to sell 40,000 containers at $30 each, delivered to Crush Company’s Shipping Division in Missouri. The company’s Shipping Division in Missouri has excess capacity and can ship the 40,000 containers at a variable cost of $4.50 per container. What is the total cost of purchasing the water from the Illinois supplier and shipping it to the Soda Division?

A) $1,200,000

B) $1,380,000

C) $1,600,000

D) $180,000

4) An advantage of using budgeted costs for transfer pricing among divisions is that ________.

A) overall corporate profitability is usually higher

B) it usually provides a basis for optimal decision making

C) the divisions know the transfer price in advance

D) it promotes subunit autonomy

5) A company should use cost-based transfer prices ________.

A) when a company’s product is specialized

B) the market for the intermediate product is perfectly competitive

C) the interdependencies of subunits are minimal

D) there is no benefit from market-based transfer price

6) A transfer price based on the full cost plus a markup may lead to suboptimal decisions because ________.

A) it leads the buying division to regard the fixed costs and the markup of the selling division as a variable cost

B) it leads the buying division to regard the variable costs and the markup of the selling division as a fixed cost

C) it leads the buying division to regard the fixed costs and the markup of the selling division as total costs

D) it leads the buying division to regard the variable costs and the markup of the selling division as total costs

7) Cost based transfer prices are the only price that a firm should use when transferring goods from one subunit to another subunit.

8) A major advantage of using actual costs for transfer prices is that often inefficiencies are NOT passed along to the receiving division.

9) The full cost plus a markup transfer-pricing method can sometimes lead to goal incongruence.

10) Cost-based transfer prices are helpful when markets are not perfectly competitive.