96. The most common method used to establish transfer prices is
a.negotiated transfer pricing.
b.market-based transfer pricing.
c.cost-plus transfer pricing.
d.cost-based transfer pricing.
97. When a sale occurs between divisions of the same company, which transfer pricing approach may lead to the buying division overpricing its product?
a.Cost based transfer pricing
b.Market-based transfer pricing
c.Negotiated transfer pricing
d.Cost-plus transfer pricing
Use the following information for questions 98–100.
The Lumber Division of Paul Bunyon Homes Inc. produces and sells lumber that can be sold to outside customers or within the company to the Construction Division. The following data have been gathered for the coming period:
Capacity200,000 board feet
Price per board foot$2.50
Variable production cost per bd. ft.$1.25
Variable selling cost per bd. ft.$0.50
Board feet needed60,000
Outside price paid per bd. ft.$2.00
If the Lumber Division sells to the Construction Division, $0.35 per board foot can be saved in98.If current outside sales are 130,000 board feet, what is the minimum transfer price that the Lumber Division could accept?
99. If current outside sales are 150,000 board feet, what is the minimum transfer price that the Lumber Division could accept?
100.If the Lumber Division has sufficient excess capacity to fulfill the Construction Division’s needs, what will be the effect on the company’s overall contribution margin?
a.Decrease by $30,000
b.Decrease by $24,000
c.Increase by $36,000
d.Increase by $33,500
Use the following information for questions 101 and 102.
Tuttle Motorcycles Inc. manufactures and sells high-priced motorcycles. The Engine Division produces and sells engines to other motorcycle companies and internally to the Production Division. It has been decided that the Engine Division will sell 20,000 units to the Production Division at $1,050 a unit. The Engine Division, currently operating at capacity, has a unit sales price of $2,550 and unit variable costs and fixed costs of $1,050 and $750, respectively. The Production Division is currently paying $2,400 per unit to an outside supplier. $90 per unit can be101. What is the minimum transfer price that the Engine Division should accept?
102.What is the increase/decrease in overall company profits if this transfer takes place?
Use the following information for questions 103 and 104.
The Can Division of Fruit Products Inc. manufactures and sells tin cans externally for $0.60 per can. Its unit variable costs and unit fixed costs are $0.24 and $0.08, respectively. The Packaging Division wants to purchase 50,000 cans at $0.32 a can. Selling internally will save $0.02 a can.
103.Assuming the Can Division has sufficient capacity, what is the minimum transfer price it should accept?
104.Assuming the Can Division is already operating at full capacity, what is the minimum transfer price it should accept?
Use the following information for questions 105 and 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$500,000
Variable costs 312,000
Fixed costs 100,000
Net Income$ 88,000
105.Assume the Yogurt Division wants to purchase 30,000 gallons of milk from the Dairy Division. The minimum price that will increase the Dairy Division’s profit is
a.$2.50 per gallon.
b.$1.18 per gallon.
c.$1.95 per gallon.
d.$0.55 per gallon.
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