Question :
106.The Dairy Division of Famous Foods, Inc. produces and sells : 1311807
106.The Dairy Division of Famous Foods, Inc. produces and sells milk to outside customers. The operation has the capacity to produce 200,000 gallons of milk a year. Last year’s operating results were as follows:
Sales (160,000) gallons$500,000
Variable costs 312,000
Contribution margin188,000
Fixed costs 100,000
Net Income$ 88,000
Assume the Dairy Division is operating at capacity. If the Yogurt Division wants to purchase 30,000 gallons of milk from the Dairy Division, what is the minimum price that will allow the Dairy Division to maintain its current net income?
a.$3.13 per gallon
b.$1.18 per gallon
c.$1.95 per gallon
d.$0.55 per gallon
107.Negotiated transfer pricing is not always used because of each of the following reasons except that
a.market price information is sometimes not easily obtainable.
b.a lack of trust between the negotiating divisions may lead to a breakdown in the negotiations.
c.negotiations often lead to different pricing strategies from division to division.
d.opportunity cost is sometimes not determinable.
108.All of the following are approaches for determining a transfer price except the
a.cost-based approach.
b.market-based approach.
c.negotiated approach.
d.time-and-material approach.
109.When a cost-based transfer price is used, the transfer price may be based on any of the following except
a.fixed cost alone.
b.full cost.
c.variable cost alone.
d.All of these may be used.
110.All of the following are correct statements about the cost-based transfer price approach except that it
a.can understate the actual contribution to profit by the selling division.
b.can reduce a division manager’s control over the division’s performance.
c.bases the transfer price on standard cost instead of actual cost.
d.provides incentive for the selling division to control costs.
111.The general formula for the minimum transfer price is: minimum transfer price equals
a.fixed cost + opportunity cost.
b.external purchase price.
c.total cost + opportunity cost.
d.variable cost + opportunity cost.
112.Variable costs of units sold internally will always be
a.lower than the variable costs of units sold externally.
b.higher than the variable costs of units sold externally.
c.the same as the variable costs of units sold externally.
d.Either higher or lower than for units sold externally.
113.In the formula for the minimum transfer price, opportunity cost is the __________ of the goods sold externally.
a.variable cost
b.total cost
c.selling price
d.contribution margin
114.The transfer price approach that conceptually should work the best is the
a.cost-based approach.
b.market-based approach.
c.negotiated price approach.
d.time-and-material pricing approach.
115.The transfer price approach that is often considered the best approach because it generally provides the proper economic incentives is the
a.cost-based approach.
b.market-based approach.
c.negotiated price approach.
d.time-and-material pricing approach.
