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146.      Wayne Company's records reveal the following:

                    Division A
                    
               Market price of finished part to outsiders          $75
               Variable costs per part                     51
               Contribution margin per part               $24

               Total contribution for 10,000 parts               $240,000

                    Division B

               Sales price of finished product               $105
               Variable costs:
                Division A (1 part @ $51)          $51
                Division B
                Processing          $27
                Selling           12     39      - 90
               Contribution margin per unit               $15

               Total contribution for 10,000 units               $150,000

     The variable costs of Division B will be incurred whether it buys from Division A or from an outside supplier.      If Division A wants to transfer the parts to Division B for $81, the manager of Division B would:

     a.     not want to buy from Division A, as the same product could be purchased at the market price of $75
     b.     buy from Division A, as this would be in the best interest of the company as a whole
     c.     buy the part from Division A as long as Division A could supply a large enough quantity to make it profitable to Division B
     d.     probably ask Division A's manager to split the difference between the $81 and the market price of $75 to arrive at a transfer price of $78


147.      Wills Company's records reveal the following:

                    Division A
                    
               Market price of finished part to outsiders          $75
               Variable costs per part                     51
               Contribution margin per part               $24

               Total contribution for 10,000 parts               $240,000

                    Division B

               Sales price of finished product                $105
               Variable costs:
                Division A (1 part @ $51)               $51
                Division B
                Processing           $27
                Selling           12     39      - 90
               Contribution margin per unit               $15

               Total contribution for 10,000 units               $150,000

     The variable costs of Division B will be incurred whether it buys from Division A or from an outside supplier.      The highest price that Division B would want to pay to Division A for the parts would be:

     a.     $51
     b.     $24
     c.     $75
     d.     $66

     

148.      Garvey Company's records reveal the following:

                    Division A
                    
               Market price of finished part to outsiders          $75
               Variable costs per part                     51
               Contribution margin per part                $24

               Total contribution for 10,000 parts               $240,000

                    Division B

               Sales price of finished product               $105
               Variable costs:
                Division A (1 part @ $51)          $51
                Division B
                Processing           $27
                Selling           12     39     - 90
               Contribution margin per unit               $15

               Total contribution for 10,000 units               $150,000

     The variable costs of Division B will be incurred whether it buys from Division A or from an outside supplier.      If Division A is working at full capacity, the best transfer price from the viewpoint of the company as a whole would be:

     a.     $105
     b.     $51
     c.     $24
     d.     $75

     

149.      Russell Company's records reveal the following:

                    Division A
                    
               Market price of finished part to outsiders          $75
               Variable costs per part                     51
                     
               Contribution margin per part               $24

               Total contribution for 10,000 parts               $240,000

                    Division B

               Sales price of finished product               $105
               Variable costs:
                Division A (1 part @ $51)          $51
                Division B
                Processing           $27
                Selling            12     39     - 90
               Contribution margin per unit               $15

               Total contribution for 10,000 units               $150,000

     The variable costs of Division B will be incurred whether it buys from Division A or from an outside supplier.      If Division A is working at full capacity, the lowest transfer price it would be willing to accept from Division B would be:

     a.     $51
     b.     $75
     c.     $24
     d.     $66

     


150.      Baker Company's records reveal the following:

                    Division A
                    
               Market price of finished part to outsiders          $75
               Variable costs per part                     51
               Contribution margin per part               $24

               Total contribution for 10,000 parts               $240,000

                    Division B

               Sales price of finished product               $105
               Variable costs:
                Division A (1 part @ $51)          $51
                Division B
                Processing      $27
                Selling            12     39      - 90
               Contribution margin per unit               $15

               Total contribution for 10,000 units               $150,000

     The variable costs of Division B will be incurred whether it buys from Division A or from an outside supplier.      If Division A is not at full capacity, the lowest transfer price at which it would be willing to sell to Division B would be:

     a.     $75
     b.     $51
     c.     $24
     d.     $66

     

151.     


 

     a.     Feedback     
     b.     Evaluation
     c.     Incentive
     d.     Risk

152.     The fact that


 

     a.     transferring items at cost can disguise a cost’s behavior pattern
b.     the buying segment will not be able to plan its costs
c.     cost inefficiencies are passed along to the buying department
     d.     it cannot be used to evaluate segment performance


153.     


 

     a.     Full cost plus a normal profit markup
     b.     External market price less selling and delivery costs
     c.     External market price plus a profit markup
     d.     Variable cost plus unavoidable fixed cost

154.     North Division sells cloth internally to South Division. South Division uses the cloth to produce inexpensive curtains sold at discount stores. North Division incurs costs of $1.50 per pound, while South Division incurs additional costs of $4.80 per pound. The product is sold to external customers for $8.00 per set of curtains. Identify which of the following formulas correctly reflects the company’s operating income.

a.     $8.00 - $1.50 = $6.50
b.     $8.00 - $4.80 = $3.20
c.     $8.00 - ($1.50 + $6.30) = $0.20
d.     $8.00 - ($1.50 + $4.80) = $1.70

155.     The Table and Chair Divisions are part of the same company. Currently the Chair Division buys a part from Table for $384. The Table Division wants to increase the price of the part it sells to Chair by $96 to $480. The manager of Chair has stated that it cannot afford to go that high, as it will decrease the division's profit to near zero. Chair can buy the part from an outside supplier for $448. The cost data for the Table Division is as follows:

               Direct materials     $136
               Direct labor     200
               Variable overhead     40
               Fixed overhead     42

     If Table ceases to produce the parts for Chair, it will be able to avoid one third of the fixed manufacturing overhead. The Table Division has excess capacity but no alternative uses for its facilities. From the standpoint of the company as a whole, should Chair continue to buy from Table or start to buy from the outside supplier?

     a.     Chair should buy from Table Division because the company's profit would be $58.00 per unit larger.
     b.     Chair should buy from Table Division because the company's profit would be $32.00 per unit larger.
     c.     Chair should buy from an outside supplier.
     d.     None of these answers is correct.

     

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