7/17/2019 Transfer Pricing Quiz

AMIS 4310

Transfer Pricing Quiz

Use the following to answer questions 1-4:

Division P of the Nyers Company makes a part that can either e sol! to outsi!e
customers or transferre! internally to Division " for further processing# $nnual !ata
relating to this part are as follows:

$nnual pro!uction capacity################################### %&'&&& units

(elling price of the item to outsi!e customers####### )*+

,ariale cost
.i/e! cost perper unit#############################################
unit################################################## )*
)+

Division " of the Nyers Company requires 1+'&&& units per year an! is currently paying
an outsi!e supplier )** per unit# Consi!er each part elow in!epen!ently#

1# 0f outsi!e customers !eman! only +&'&&& units per year' what is the lowest
acceptale transfer price from the viewpoint of the selling !ivision
a# )*+
 # )**
c# )%

d. $23
# 0f outsi!e customers !eman! %&'&&& units' what is the lowest acceptale transfer
 price from the viewpoint of the selling !ivision
a. $35
 # )**
c# )%
!# )*

*# 0f outsi!e customers !eman! %&'&&& units an! if' y selling to Division "'
Division P coul! avoi! )4 per unit in variale selling e/pense' what is the lowest
acceptale transfer price from the viewpoint of the selling !ivision
a# )*+
 # )1
c. $31
!# )**

4# 0f outsi!e customers !eman! 2&'&&& units' what is the lowest acceptale transfer
 price from the viewpoint of the selling !ivision for each of the 1+'&&& units

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nee!e! y "
a# )**
b. $27  
c# )%
!# )3

Use the following to answer questions +-:

5he 6eta(hoe Company manufactures only one type of shoe an! has two !ivisions' the
(ole Division' an! the $ssemly Division# 5he (ole Division manufactures soles for the
$ssemly Division' which completes the shoe an! sells it to retailers# 5he (ole Division
7sells7 soles to the $ssemly Division# 5he market price for the $ssemly Division to
 purchase a pair of soles is )&# 5he fi/e! costs for the (ole Division are assume! to e )1
 per pair at 1&&'&&& units# 5he fi/e! costs for the $ssemly Division are assume! to e )2
 per pair at 1&&'&&& units#

Sole's costs per pair of soles are:

Direct materials )4
Direct laor )*
,ariale overhea! )
Division fi/e! costs )1

 Assembly's costs per completed pair of shoes are:

Direct materials )
Direct laor )
,ariale overhea! )1
Division fi/e! costs )2

+# Calculate an! compare the !ifference in overall corporate net income etween
(cenario $ an! (cenario 6 if the $ssemly Division sells 1&&'&&& pairs of shoes for 
)& per pair to customers#
(cenario $: Negotiate! transfer price of )1+ per pair of soles
(cenario 6: 8arket-ase! transfer price
a# )+&&'&&& more net income un!er (cenario $
 # )+&&'&&& of net income using (cenario 6
c# )1&&'&&& of net income using (cenario $#
d. None of these answers is correct.

# 0f the $ssemly Division sells 1&&'&&& pairs of shoes at a price of )& a pair to
customers' an! the transfer price is 1%&9 of total costs of the (ole Division' what is
the operating income of oth !ivisions together
a# )4'4&&'&&&

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b. $3,400,000
c# )*'&&&'&&&
!# )'&&'&&&

7. Division  of Charter Corporation makes an! sells a single pro!uct which is use! y
manufacturers of fork lift trucks# Presently it sells 1'&&& units per year to outsi!e
customers at )4 per unit# 5he annual capacity is &'&&& units an! the variale cost to
make each unit is )1# Division ; of Charter Corporation woul! like to uy 1&'&&&
units a year from Division  to use in its pro!ucts# 5here woul! e no cost savings
from transferring the units within the company rather than selling them on the outsi!e
market# <hat shoul! e the lowest acceptale transfer price from the perspective of
Division 
a# )4#&&
 # )1#4&
c. $17.60
!# )1#&&

Use the following inforation for !uestions " an# $%

 5he 6uffalo Division of $lfre! Pro!ucts' 0nc# has the capacity to manufacture 1&'&&&
units of a certain part each year# 5his part sells for )1 per unit on the outsi!e market#
5he $lany Division of $lfre! Pro!ucts' 0nc# uys *'&&& units of this part each year from
6uffalo' an! thus far has pai! the market price# =arlow Company >an outsi!e supplier?
has recently offere! to sell $lany *'&&& units per year of the same part# 6uffalo
Division@s costs relating to the pro!uct are:

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10. (uppose that the ,ega Division has ample i!le capacity so that transfers to the <alsh
Division woul! not cut into its sales to outsi!e customers# <hat shoul! e the lowest
acceptale transfer price from the perspective of the ,ega Division
a. $28
 # )*&

c#
!# )4
)4+

11. <hat is the ma/imum price per wheel that <alsh shoul! e willing to pay ,ega
a# )%
b. $41
c# )4
!# )4+

1'. (uppose that ,ega can sell 3'&&& wheels each month to outsi!e consumers' so
transfers to the <alsh Division cut into outsi!e sales# <hat shoul! e the lowest
acceptale transfer price from the perspective of the ,ega Division
a# )%#&&
b $31.75
c# )41#&&
!# )4#&&

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