Responsi

bil
i
tyAccount
ingandTransferPr
icing
(B.Tr
ansferPri
cing)

B.TRANSFERPRI
CING D.whent
het
ransf
ershoul
dbemade

THEORIES: Object
ives
Natur
e 1. Theobject
iveofat r
ansferpri
cingsyst
em shoul
dbeto
5.Transf
erpri
cesar echargesfor A.maxi mizet
hetransferpri
ce
A.tr
anspor
tationofgoodsoutsideuni
tsofanorgani
zat
ion. B.mi ni
mizethetransf
erprice
B.goodssoldbysubuni t
stooutsi
decustomer
s. C.mai nt
aingoalcongruencebet weenthedivi
si
onsandt
heent
ir
efi
rm
C.goodsexchangedamongsubuni t
s. D.noneoft heabove
D.goodsstoredwithi
nasubunit.
2.Theobjecti
ve( s)oftr
ansf erpri
cingar
e
23.
Atr
ansf
erpr i
cei sapr i
cecharged A.tomot ivatemanager s
A.tooutsidecust omers B.topr ovideani ncentiveformanagerstomakedeci
sionsconsi
stentwi
th
B.whenonedi visionsel
l
sit
sgoodsorservi
cest
oanot
herdivi
si
on t
hef i
rm' sgoals(i
.e.,goalcongruence)
C.bythesel l
i
ngdi vi
si
ontothebuyi
ngdivi
si
onwhenoutsi
demar ketdoes C.topr ovideabasi sforf ai
rl
yrewardi
ngthemanager
s
notexist D.alloftheabove
D.aandb
4.Atr
ansferpri
cingsystem shouldsati
sfywhi
choft
hefol
lowi
ngobj
ect
ives
?
24.
Transferpri
cesare A.accurateperfor
manceeval uationC.goalcongr
uence
A.necessar ytocalcul
atecostsi
nacost
,profi
t,orinvestmentcent
er B.preservat
ionofdivisi
onalautonomy D. alloft
heabove
B.pr eferr
edbybuyi ngdivi
si
onsaret
helowestpossible
C.donotmakeanydi f
ferencefort
hecompany' sbottom-li
nenomatt
er 34.
Themarketpri
cemet
hodsat
isf
yakeyobj
ecti
veoftransf
erpr
ici
ng,namel
y:
whatnumberi sused A.object
ivi
ty C.consi
stency
D.al loft
heabove B.usabil
i
ty D.rel
i
abil
i
ty

36.
Whichoft hefoll
owingisakeyf actortocons i
derindecidi
ngwhet
hert
o I
rrel
evantcost s
makeinternalt
ransf
ers,and,ifso,inset
ti
ngt hetransf
erpri
ce? 29.Whi chitem isusuall
ynotr el
evantt
oadecisionbyadi
vi
sionalmanagert
o
A.Isthereanout si
desupplier? reduceat ransferpri
cet omeetapr i
ceofferedt
oanot
herdivi
si
onbyan
B.Istheseller
'svari
abl
ecostl essthanthemar ketpri
ce/ outsidesuppl i
er?
C.Istheselli
ngunitoperat
ingatf ul
lcapaci
ty? A.oppor t
uni t
ycost
D.Alloftheabovear ekeyf actor
s. B.var i
abl
emanuf act
uringcosts
C.f ixeddivisi
onaloverhead
32.
From t
hest andpointoft hecompany,t heimport
antquest
ioni
ntr
ansf
er D.t hepr i
ceof fer
edbyt heoutsi
desuppl
i
er
pri
ci
ngis
A.whati sfai
rtothedivisi
ons Mini
mum &Maximum Tr
ansferPri
ce
B.howt odet er
minethepr ofi
tofthedivi
si
ons General
rul
e
C.whet herornotthetransfershoul
dtakeplace 9.Thegeneralr
ulei
nes t
abli
shi
ngtransf
erpr
icesconsi
stentwi
theconomi
c

393
 Responsi
bil
i
tyAccount
ingandTransferPr
icing
(B.Tr
ansferPri
cing)

deci
si
onmaki ngi st
he Met
hodsoftr
ansferpri
cing
A.diff
erentialcostplusopportuni
tycosti
fgoodsaretransf
erredi nt
ernal
ly. 3.Thebasi
cmet hodsus edi
ntr
ansf
erpr
ici
ngare
B.actual costplusopportuni
tycostifgoodsaret
ransfer
redinternal
ly. A.vari
ableorful
lcosts C.mar ketpri
ceornegot
iat
edpr
ice
C.standar dcostplusoppor t
unit
ycostifgoodsar
et r
ansfer
redi nter
nall
y. B.dualpri
ces D.alloftheabove
D.alloftheabove.
8.Anexampl eofat r
ansf
erpri
cepol
i
cyi
s
Sel
l
er’ (mi
nimum pr ice) A.mar ketpr i
ce.
26.
Themi
nimum t r
ansferpriceshouldbe: B.actual costpl
usmarkup.
A.opport
unitycostforsell
ingdivi
si
on C.standar dcostpl
usmarkup.
B.opport
unitycostforbuyingdivi
sion D.alloftheabove.
C.opport
unitycostforthecompanyasawhole
D.onl
yvariablecostforthesell
ingdivi
si
on 27.
Transf
erpri
cesaresetby:
A.costorcostplus C.negot
iat
ion
1
4.A selli
ng di visi
on produces component sfora buying division t
hati s B.mar ketpri
ces D.al
loft
heabove
consider i
ngaccept i
ngaspeci alorderfortheproductsitproduces .The
sell
i
ng di visi
on has excess capaci t
y. The minimum pr i
ce t he sell
i
ng 35.
Whi
choft hef
oll
owingaretr
ansf
erpr
ici
ngmodels?
divi
si
onwoul dbewi ll
i
ngt oaccepti
sthe A.Vari
ablecostmethod C.Marketcostmet
hod
A.sel li
ngdi visi
on’ B.Averagepri
cemet hod D.Al
loftheabove
B.buyi ngdivisi
on’
C.pr icet hatwoul dallow t
hebuyingdivisi
ontocoveritsincrement alcost Marketpri
ce
oft hespeci alorder 10.I
fafir
m operat
esatcapacity,t
het
ransf
erpri
ceshouldbet
he:
D.pr icet hatwoul dall
owt hesel
li
ngdivi
siontomaintai
nitscur rentROI A.external
mar ketpr
ice. C.actualcost
.
B.diff
erent
ial
cost. D.standardcost
.
25.
Theminimum tr
ansferpr
icef
rom t
hesell
er'sstandpoi
nti
s
A.mar ketpr
icewhenexcesscapaci
tyexists 1
2.To avoid waste and maxi
mize effi
ciency when tr
ansferr
ing pr
oducts
B.mar ketpr
icewhenexcesscapaci
tydoesnotexi st among di vi
sions in a compet i
ti
ve economy, a l arge diversi
fi
ed
C.incr
ement alcost
swhenexcesscapaci
t yexist
s cor
porationshoul
dbaset r
ansf
erpriceson:
D.bandc A.fullcost C.r epl
acementcost
B.variablecost D.mar ketpr
ice
Buyer
’ (
maxi mum price)
7.Generall
y,t
heoutsidemar ketpri
cewouldbe 1
3.I
fanint
ermediat
emar ketexi
sts,theopti
maltransf
erpriceist
he:
A.afl
oorforint
ernaltr
ansferpri
ce. A.outl
aycostforpr
oducingthegoods.
B.aceil
ingfori
nternalt
ransferpri
ce. B.opport
unit
ycostofnotsell
ingt otheout
sidemar ket
.
C.bothaandb C.marketpri
ce.
D.noneoftheabove. D.vari
abl
ecostsassociat
edwi thproduci
ngt heproduct.

394
 Responsi
bil
i
tyAccount
ingandTransferPr
icing
(B.Tr
ansferPri
cing)

1
6.I
fther
eisnoexcesscapacity,t
hetransferpri
cei
sof
ten B.passi
ng on eff
ici
enci
es ori
nef
fi
cienci
es ofsuppl
yi
ng di
vi
si
ons t
o
A.mar ketpr
ice recei
vi
ngdivi
si
ons.
B.oppor t
uni
tycostpl
usincrementalcost C.bothaandb.
C.vari
ablecostorvar
iabl
ecostpluspr ofi
t D.noneoftheabove.
D.aorb
1
5.Which oft he f
oll
owi
ng typesoft r
ansferpri
cesdo notencour
age t
he
20.
Mar
ketprici
ngappr oachint r
ansferpri
cing sel
l
ingdivisi
ontobeeffi
cient
?
A.helpstopreserveunitautonomy A.transferpri
cesbaseduponmar ketpr
ices
B.provi
desi ncenti
vef ortheselli
nguni ttobecompetit
ivewithoutsi
de B.transferpri
cesbaseduponactualcosts
suppli
ers C.transferpri
cesbaseduponstandardcosts
C.maybet hemostpr acti
calapproachwhent her
eissi
gnifi
cantconf
li
ct D.transferpri
cesbaseduponstandardcostspl
usamarkupforpr
ofi
t
D.bothaandb
31
.Thewor stt
ransfer-
pri
cingmet
hodi
stobasethepriceson
28.
Thebestt
ransferpri
ceisusual
ly A.marketprices C.budgetedvar i
ablecost
s
A.actualcostpl
usaper cent
agemar kup B.budgetedt ot
alcos
ts D.actualt
otalcosts
B.areli
ablemar ketpri
ce
C.budgetedf ul
lcostpl
usapercent
agemar kup Vari
abl
ecost i
ng
D.budgetedvar i
ablecostpl
usapercentagemarkup 21.Var
iablecosti
ngmet hodoftransf
erpri
cingis
A.easyt oimplement
30.
Mar
ket-
basedtransferpri
cesarebestfort
he B.intui
ti
veandeasi l
yunderstood
A.companywhent hesel
li
ngdivi
si
onisoper at
ingbel
owcapaci t
y. C.mor elogicalwhenther
ei sexcesscapaci
ty
B.companywhent hesel
li
ngdivi
si
onisoper at
ingatcapaci
ty. D.alloftheabove
C.buyi
ngdivi
si
oni fiti
soperat
ingatcapaci
ty.
D.buyi
ngdivi
si
on. 22.
A companymayconsi derusi
ngvar iabl
ecostsintransferpri
cingwhen
ther
eis
33.
Whichtransferpricei
sideal
fort
hecompanywhent
hesel
l
ingdi
vi
si
oni
sat A.excesscapaci
tybecausevari
ablecostswoul
dstaythesame
capaci
ty? B.noexcesscapacit
ybecausevar i
ablecost
swouldnotst ayt
hesame
A.Mar ketprice C.excesscapaci
tybecausefi
xedcost swoul
dstaythesame
B.Increment alcost D.noexcesscapacit
ybecausefixedcostswoul
dstayt hesame
C.Budget edf ul
lcost
D.Actual vari
ablecostpl
usapercent
agepr
ofi
t Full
cost
18.I
ffullcosti
susedintransf
erpri
cing,i
tispref
erabl
etouse
Act
ualcosts A.standardfullcostbecausethebuyerdoesnotwi shtobestuckwit
h
6.Disadvantagesoftr
ansf
erpri
cesbasedonact
ualcosti
nclude: unknowns
A.r educingtheincent
iveofmanagersofsuppl
yingdivisi
onst
ocont
rol B.standardfullcostbecausethesellerdoesnotwishtopassalongt
he
thei
rcosts. vari
ati
onsincost

395
 Responsi
bil
i
tyAccount
ingandTransferPr
icing
(B.Tr
ansferPri
cing)

C.actualf
ullcostbecausethebuyeri
swel
l
-advisedt
odealwi
tht
her
eal B.85,
000 D.95,
000
rat
herthanantici
patedcosts
D.actualf
ullcost
sbecauset hesel
l
eri
swel
l-advi
sedt
odealwi
tht
her
eal Wit
hexcesscapaci t
y
rat
herthanantici
patedcosts Bargai
ningrange
i
i. An appropr iat
et r
ansf er pri
ce bet ween two divi
si
ons of t
he Reno
Negoti
ated Corporat
ioncanbedet er mi
nedf rom thefol
l
owingdata:
11
.Negot i
atedt r
ansf
erpricesar
eappr opri
atewhen: Fabr i
cationDi vi
sion
A.therearecostsavingstothesell
ingdivi
si
on. Mar ketpriceofsubassembl y P50
B.thereisnoexternalmarketpri
ce. Variablecostofsubassembl y P20
C.theinternalmarketpri
ceref
lect
sabar gainpr
ice. Excesscapaci ty(inunit
s) 1,000
D.alloftheabove. Assembl i
ngDi visi
on
Numberofuni tsneeded 900
1
7.Anegoti
atedtr
ansferpri
cingsystem i
ssetupwher e Whatisthenat uralbar gaini
ngr angeforthetwodivi
si
ons?
A.thetwosidescannotagr eeonapr i
ceandt hedif
ferencebetweent
he A.BetweenP20andP50 C.Bet weenP50andP70
twosidesisabsorbedbyt hehomeof fi
ce B.Anyamountl esst hanP50 D.P50i stheonl
yaccept
ablepri
ce
B.areadymar ketpriceisnotavail
ableandthet wosidesmustcomeup
withanagreeableprice Minimum tr
ansferpri
ce
C.thebuyerbuysatvar i
ablecostandthesell
eronlysel
lsatful
lcost i
i
i.Fami l
yEnterpri
seshast wodi vi
sions:DavyandJohnny.DavyDi visi
onhas
D.thetwosidesagreetouseacostbasi sfortr
ansferprici
ng acapacitytopr oduce2,000uni tsandi sexpectingt osell1,
500uni t
s.
JohnnyDivi
sionwant stopurchase1 00uni tsofapr oductDavyproduces.
Multi
nat
ional t
ransf
erpr ici
ng Davysell
stheproductatasel l
i
ngpr iceofP1 00peruni t
,thevari
ablecost
19.Tomi ni
mi zetaxes,somemul ti
nat
ionalcompani
essetl
ow t
ransf
erpr
ices peruniti
sP25andt hefi
xedcost st otalP30,000.Themi ni
mum t r
ansfer
whengoodsar eshi ppedf r
om pri
cethatDavywi l
laccepti
s?
A.lowt axcount r
iest ootherlowtaxcountr
ies A.P1 00 C.P43.75
B.lowt axcount r
iest ohi
ght axcountri
es B.P45 D.P25
C.hight axcountriestolowt axcountri
es
D.corb i
v.Assumet hatDi vi
si
onXhasapr oductt hatcanbesol deit
hertooutside
customer s on an i ntermediat
e mar ketort o Divi
si
on Y ofthe same
PROBLEMS: companyf orusei ni t
spr oduct
ionpr ocess.Themanager softhedivi
sion
Residual i
ncome areeval uat edbasedont heirdi
visi
onal profit
s.
i
. Mar shCompanyt hathadcurr
entoperati
ngas set
sofonemi l
l
ionandnet DivisionX:
i
ncomeofP200, 000hadanopportunit
ytoinvesti
napr oj
ectthatrequi
res Capaci tyinunit
s 200,
000
an addi ti
onalinvest
mentofP250, 000 and increased netincome by Numberofuni t
sbei ngsoldont heinter mediatemarket 1 60,
000
P40, 000.The company' srequi
red rate ofr et
urni s1 2%.Af tert
he Selli
ngpr iceperuni tontheintermedi atemar ket P75
i
nvest ment,thecompany'sr
esi
dualincomewi l
lamountto Variabl escostsperuni t 60
A.80, 000 C.90,000 Fixedcost speruni t(basedoncapaci ty) 8

396
 Responsi
bil
i
tyAccount
ingandTransferPr
icing
(B.Tr
ansferPri
cing)

vi
i
.CompanyY i shighlydecent r
ali
zed. Di visi
onX,whi chi soper at
ing at
Divi
si
onY: capacit
y,producesa componentt hati tcurrentlysellsin a perfectl
y
Numberofunitsneededforpr
oducti
on 40,000 competiti
vemarketforP1 3peruni t
.Att hecur rentlevelofproduct i
on,
Purchasepr
iceperunitnowbei
ngpaidtoanout
sidesuppl
i
er thefi
xedcostofproducingthiscomponenti sP4peruni tandthevar i
able
P74 costisP7peruni t
. Divisi
onZ woul dliket opur chaset hi
scomponent
Themi ni
mum tr
ansferpri
cetobechargedbytheDi
vi
sionXshoul
dbe: from Di
visi
onX.Whatwoul dbet hepricet hatDivisi
onXshoul dchar ge
A.P60 C.P68 Divi
si
onZ?
B.P75 D.P74 A.P 7 C.P 1 1
B.P 1 3 D.P 9
Ef
fectonpr ofitofmakedeci si
on
v. Bearing Divisi
onofPhant om Cor p.sel l
s80, 000 uni
tsofPar tX tothe vi
i
i.TheBl ackDi visionofPl umaCompanypr oducesahi ghqual i
tymar ker
.
outsi
demar ket.Par tXsellsforP1 0.00andhasavar i
abl
ecostofP5. 50 Unitpr oductioncost s(basedoncapacityproductionof100,000unitsper
andaf i
xedcostperuni tofP2.50. Bear i
nghasacapaci tyt oproduce year)follow:
100,000uni tsperper i
od.Mot orDivisioncurrentl
ypurchases1 0,000unit
s Directmat erial
s P 60
ofPar tXf rom Bear i
ngf orP1 0.
00. Mot orhasbeenappr oachedbyan Directlabor 25
outsi
desuppl i
erwil
li
ngt osupplythepar tsforP9.00.Whati stheef f
ecton Over head( 20% variabl
e) 15
XYZ’ Otheri nformat ion
tobuyout side? Salespr ice 120
A.nochange TheBl ackDi visionisproducingandsell
ingatcapacity.
B.P20, 000decr easeinPhant om profit
s Whati st hemi nimum sel l
i
ngpr i
cethatthedivisi
onwoul dconsiderasa
C.P35, 000decr easeinPhantom pr ofit
s “t
ransferpr ice”t otheRedDi vi
si
ononwhi chnovar iabl
eper i
odcost s
D.P1 0,
000i ncreaseinPhantom pr ofit
s wouldbei ncur red?
A.P1 20 C.P 88
vi
.Bear i
ngDi vi
sionofXYZCor p.sells80,000unitsofPar tXtot heoutsi
de B.P 91 D.P1 1
7( ?)
mar ket. PartXsel l
sforP1 0.
00andhasavar i
abl
ecostofP5. 50anda
fi
xedcos tperunitofP2.50.Bear i
nghasacapaci t
yt oproduce1 00,000 i
x.Har em Cor porationconsist
soft wodi vi
sions,MiningandBui lders.The
unit
sperper i
od.Mot orDivi
sioncur r
entl
ypurchases1 0,000unitsofPartX Mi ningmakesbl acksteel
,apr oductthatcanbeusedi ntheproductthat
fr
om Bear i
ng forP1 0.
00. Mot orhasbeenappr oached byanout si
de theBui ldersdivisionmakes.Bot hdi vi
si
onsar econsider
edpr ofi
tcenters.
supplierwill
i
ngt osupplythepar tsforP9.00.Whati st heeffectonXYZ’ The f oll
owi ng dat a ar
e avail
able concerning bl
ackst eeland the two
overallprofi
tifBeari
ngrefusestheout si
depri
ceandMot ordecidest
obuy divisions:
i
nside? Mining Buil
ders
A.nochange C.P35, 000decr easeinXYZpr ofi
ts Aver ageuni tsproduced 1 50,
000  
B.P20, 000decr easei
nXYZpr ofi
ts D.P1 0,000increaseinXYZpr ofit
s Aver ageuni tssold   150,
000
Var i
ablemf gcostperuni t P2  
Atcapaci
ty Var i
ablefi
ni shi
ngcostperuni t   P5
Mini
mum transf
erpr
ice Fi xeddi vi
sionalcosts P75,000 P1 25,
000

397
 Responsi
bil
i
tyAccount
ingandTransferPr
icing
(B.Tr
ansferPri
cing)

TheMiningDivi
sioncansel lal
lofit
sout putoutsi
dethecompanyforP4 Producedduri
ngtheyear 20,
000
peruni
t.TheBuil
dersDivi
sioncanbuyt heblackst
eelfr
om ot
herf
ir
msfor Soldtoout
sidecust
omers 16,
000
P4.TheBuil
dersDivi
sionsell
sit
sproductf orP12. SoldtoCompoDi vi
si
on 4,
000
Whatistheopti
mal t
ransf
erpr i
ceinthiscase?
A.P2peruni t C.P7peruni t Salesto Compo Divisi
on were atthe same pr
ice assalesto outsi
de
B.P4peruni t D.P9peruni t customers.Thecir
cuitboardspurchasedbyCompoDi vi
sionwereused
i
nanel ectr
onici
nstrumentmanuf act
uredbythatdi
visi
on( oneboardper
x. Assume t hatSt eelDivisi
on hasa pr oductt hatcan be sol d ei
therto i
nstrument).Compo Di vi
sion i
ncurred P100 in addit
ionalcost per
outsi
decust omer sonani ntermedi at
emar ketort oFabri
cati
onDivisi
onof i
nstrumentandthensoldtheinst
rumentforP300each.
thesamecompanyf orusei nitsproduct i
onpr ocess.Themanager sof
thedivi
sionareeval uat
edbasedont heirdivisi
onal pr
ofi
ts. Assumet hatChipsDivisi
on’ ,
000 cir
cuit
SteelDivi
sion: boards.NextyearCompo Di vi
si
on wantst o purchase 5,
000 cir
cuit
s
Capacityinunits 200,000 boardfrom Chi
psDivisi
onr at
herthan4,000.(Cir
cuitboardsoft
histype
Numberofuni tsbeingsol dont heintermediat emarket 200, 000 arenotavai
labl
efrom outsi
desources.
)
Sell
ingpr i
ceperuni tonthei ntermediatemar ket P90
Vari
ablescost sperunit(incl
udi ngP3ofavoi dablesell
i
ngexpense) Should Chi
ps Di
visi
on sell1 ,000 additi
onalcir
cuitboar ds t
o Compo
70 Divi
si
onorconti
nuetosell t
hem out si
decust omer
s?
Fi
xedcost speruni t(basedoncapaci ty) 1
3 A.No,becausetheover allprofi
twill
decreasebyP35, 000.
B.Yes,becausetheover al
l prof
itwil
ldecreasebyP35, 000.
Fabri
cati
onDivisi
on: C.No,becausethereisnochangei ntheoveral
lprof
it
.
Numberofuni t
sneededf orpr
oduct
ion 40,
000 D.Yes,becausetheover al
l prof
itwil
lincr
easebyP75, 000.
Purchasepri
ceperuni tnowbeingpaidtoanout
sidesuppl
i
er
P86 Maximum t r
ansf erpri
ce
Theappr opr
iat
etransferpri
ceshouldbe: xi
i
.Chi psDi visionmanuf acturersel ect
roni
ccircui
tboar
ds.Theboardscan
A.P90 C.P70 besol dei thert oCompoDi visi
onoft hesamecompanyort ooutside
B.P87 D.P86 customer s.Lastyear ,thef oll
owingact i
vi
tyoccurr
edi
ndivi
si
onA:
Sell
i
ngpr i
ceperci rcuitboar d P125
Part
ialexcesscapacit
y Product ioncostperci r
cui tboard 90
Decisi
on Number sofci r
cuitboar ds:
xi
.Chi psDivisionmanufact
urer
select
roni
ccircui
tboar
ds.Theboar
dscan Produceddur ingt heyear 20,000
besol deithertoCompoDi visi
onofthesamecompanyort ooutsi
de Soldt oout si
decust omer s 16,000
customers.Lastyear
,thefol
l
owingacti
vi
tyoccurr
edi
ndivi
si
onA: Soldt oCompoDi vision 4,000

Sell
i
ngpr i
cepercir
cui
tboar d P1
25 Salesto Compo Divisi
on were atthe same pr
ice assalest
o outsi
de
Product
ioncostperci
rcuitboar
d 90 customers.Theci
rcuitboardspurchasedbyCompoDi vi
si
onwereused
Numbersofcircui
tboards: i
nanel ectr
onici
nstr
umentmanuf act
uredbythatdi
visi
on(oneboardper

398
 Responsi
bil
i
tyAccount
ingandTransferPr
icing
(B.Tr
ansferPri
cing)

i
nst
rument)
.Compo Divi
sion i
ncurr
ed P100 i
n addit
ionalcost per A.P1
17 C.P1
50
i
nst
rumentandt
hensol
dtheinst
rumentf
orP300each. B.P1
40 D.P1
56

Assumet hatChipsDivisi
on’ ,
000 cir
cuit
boards.NextyearCompo Di vi
si
on wantst o purchase 5,
000 cir
cuit
s
boardfrom Chi
psDivisi
onr at
herthan4,000.(Cir
cuitboardsoft
histype i
. Answer:C
arenotavai
labl
efrom outsi
desources.
) NewOper ati
ngProfi
t(P200,
000+P40,
000) P240,
000
LessRequir
edRet ur
ns(P1,
250,
000x0.
12) 150,
000
Chi
psDi visi
on pr
oposed thata transf
erforaddit
ional1,
000 uni
tsbe NewResidual I
ncome P 90,
000
pr
oduced byr equir
ing i
tswor ker
st o wor
k overt
ime. ChipsDivi
si
on
i
ndicat
edt hatt
het r
ansferpri
cemaybeunr easonablyhi
ghbecauseof i
i
. Answer:D
t
heover t
imepremium. TheFabricat
iondivi
si
onhasexcesscapaci
ty,t
her
efor
ethedi
vi
si
oncan
tr
ansf
ertheunitsatamini
mum t
ransf
erpri
ceofP50
Whatisthemaxi mum tr
ansf
ert
hatCompoDivi
si
onwi
l
lacceptf
ort
he
addit
ional
1,000uni
ts? i
i
i.Answer:D
A.P 90 C.P200 Themi ni
mum Davywoul
d accepti
stheopportuni
tycostt
o maket
he
B.P125 D.P300 product
,whi
chwoul
dbethevari
abl
ecostofP25.

Usethefoll
owi
ngdat at oanswerquest i
ons1 1through1 3. i
v.Answer:A
N&RCompanyt ransfersapr oductf
rom divi
si
onNt odivisionR.Vari
abl
ecost Theminimum t
ransf
erpr
icei
sP60becauset
heDi
vi
si
onXhasexcess
ofthi
sproductisanticipatedtobeP40auni tandt otalfixedcostsamountto capaci
ty
P8,000.A tot
alof1 00 unitsareant i
cipat
ed to bepr oduced.Actualcost
,
however,amount st o P50 forvar i
able cost
s .Fixed cost swere same as v. Answer :C
budget.However,actual out
putwast wiceasmany. The pr of
itoft he company wil
ldecr ease by P35,
000 which i
sthe
dif
ferencebetweent hevar
iabl
e(r
elevant)costandt
hepur
chasepri
ce.
xi
i
i.Act
ual
costperuni
tamount
sto (P9.00–P5. 5)x10,000units=P35,000
A.P90 C.P1
15
B.P92 D.P1
20 vi
.Answer :A
Ther
ei snochangei nthepr
ofi
tbecauset
heMot
orDi
vi
si
ondi
dnotbuy
xi
v.The t
ransf
erpr
ice based on act
ualvar
iabl
e cost
spl
us1
30% mar
kup fr
om theout
sidesuppl
ier
amountsto
A.P90 C.P1 15 vi
i
.Answer :B
B.P92 D.P1 20 Thedivi
sionisoperat
ingatcapaci t
y(zeroexcesscapaci
ty)
.Anyquant
it
y
ofproducti
ont obet ransfer
redtot heDivi
sionZmustbeatP1 3; Any
xv.Thet
ransf
erpr
icebasedonbudget
edf
ullcostpl
us30% mar
kupamount
s pri
cebelowP1 3,astr
ansf erpri
ce,woulddecreasei
tsprofi
t.
to

399
 Responsi
bil
i
tyAccount
ingandTransferPr
icing
(B.Tr
ansferPri
cing)

vi
i
i.Answer:D Theactualcosti
sthesum ofuni
tvar
iabl
ecos
tpl
usf
ixedcostdi
vi
dedby
Sell
i
ngprice(marketpri
ce) P1
20 act
ualunit
sproduced.
Lessavoi
dablesell
i
ngexpense1
5x20% 3 50+(8000÷200)=P90
Minimum tr
ansf
erprice P117
xi
v.Answer:C
i
x.Answer :B Vari
abl
ecost P 50
Theopt i
maltransferpri
cei sP4peruni t,whichr epresentsthevalueof Markup (P50x1
.3) 65
usingtheblacksteeli
nt heBuildersDivisionbecauset heblacksteelwil
l Tr
ansferpri
ce P115
costP2t omanufactureandeachuni tusedi nter
nallyisaunitthatcannot
besoldt oexter
nalbuyer s.I
fani ntermedi at
emar ketexist
s,theoptimal xv.Answer:D
tr
ansferpri
ceisthemar ketpri
ce. Budgetedf
ullcost P40+(
P8,000÷100) P1
20
Markup (
P1 20x0.
3) 36
x. Answer:B Tr
ansferpr
ice P1
56
Thedivisi
oni soper
ati
ng atcapaci
ty,ther
efor
e,themini
mum transf
er
pri
cemustbet heamountofsell
i
ngpr i
ce,l
essavoi
dabl
esel
li
ngexpense.
Sel
li
ngprice P90
Avoi
dablesell
i
ngexpense 3
NetPri
ce 87

xi
.Answer:D
Sell
i
ngpr i
cechar gedbyCompoDi vi
si
on P300
Sell
i
ngpr i
cechar gebyChipsDivi
si
on 125
Addit
ionalsell
i
ngpr i
ce P175
Lessaddit
ionalprocessi
ngcostbyCompo 100
Addit
ionalprofi
tperunit P 75
Addit
ionalprofi
t: 1,
000xP75 P75,000

xi
i
.Answer :C
Fi
nalsel
li
ngpr i
cebyCompo P300
Lessaddi
ti
onal processi
ngcost 100
Maximum mat eri
alcost(t
ransf
erpr
ice) P200
Atat r
ansferpr i
ceofP200,Compo wi l
lnotr
eal
i
zeanypr
ofi
tont he
addi
ti
onal1,000uni t
s

xi
i
i.Answer
:A

400