Business / Management Accounting Ch 12 Problems

Management Accounting Ch 12 Problems

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ic incentives

59. All of the following are true of cost-based transfer prices EXCEPT that they:

a. provide no incentive to the supplying division to control costs when actual costs are used

b. may use standard costs to help maintain operating efficiency

c. promote the optimal level of transactions for the overall organization

d. don't give proper guidance when operating capacity is constrained

60. The MOST likely result of a negotiated transfer price is that it:

a. takes away the ultimate responsibility of the resulting transfer price from the two parties

b. may reflect the relative negotiating skills of the two parties

c. generally results in transferring more than the optimum number of units

d. reflects purely economic considerations

61. An administered transfer price:

a. is most often used for infrequent transactions

b. retains the accountability of both parties

c. reflects pure economic considerations

d. provides an arbitrary distribution of revenues and costs between the responsibility centers

THE FOLLOWING INFORMATION APPLIES TO QUESTIONS 62 THROUGH 65.

The Jordan Company manufacturers only one type of shoe and has two divisions, the Sole Division and the Assembly Division. The Sole Division manufactures soles and then "sells" them to the Assembly Division, which completes the shoes and sells them to retailers. The market price for the Assembly Division to purchase a pair of soles is $20. Fixed costs are per pair at 100,000 units.

Sole's costs per pair of soles are:

Direct materials $4

Direct labor $3

Variable overhead $2

Division fixed costs $1

Assembly's costs per completed pair of shoes are:

Direct materials $5

Direct labor $1

Variable overhead $1

Division fixed costs $9

62. If the cost-based transfer price is 180% of variable costs ,

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