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156.     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     $136.00
               Direct labor     200.00
               Variable overhead     40.00
               Fixed overhead     38.40

     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.


 

     a.     $480.00
     b.     $448.00
     c.     $388.80
     d.     $414.40

     

157.     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.


 

     a.     $480
     b.     $448
     c.     $390
     d.     $376

     

158.     Division Y sells soybean paste internally to Division Z, which, in turn, produces soybean burgers that sell for $5 per pound. Division Y incurs costs of $0.75 per pound, while Division Z incurs additional costs of $2.50 per pound. Identify which of the following formulas correctly reflects the company's operating income.

     a.     $5.00 - ($0.75 + $2.50) = $1.75
     b.     $5.00 - ($1.25 + $2.50) = $1.25
     c.     $5.00 - ($0.75 + $3.75) = $0.50
     d.     $5.00 - ($0.25 + $1.25 + $3.50) = $-0-

159.     Optimal corporate decisions are made:

     a.     when goods or services are transferred at market prices
     b.     when goods or services are transferred at full cost prices
     c.     when goods or services are transferred at variable cost prices
     d.     when goods or services are transferred at fixed cost prices

160.     Sandler Company makes internal transfers at 180% of full cost. The Soda Refining division purchases 30,000 containers of carbonated water per day, on average, from a local supplier who delivers the water for $30 per container via an external shipper. To reduce costs, the company located an indepen¬dent producer in Ohio who is willing to sell 30,000 containers at $20 each, delivered to Sandler Company's shipping division in Ohio. The company's Shipping Division in Ohio has excess capacity and can ship the 30,000 containers at a variable cost of $2.50 per container.


 

     a.     $900,000
     b.     $1,200,000
     c.     $1,501,000
     d.     $1,620,000

     

161.     Diaz Company makes internal transfers at 180% of full cost. The Soda Refining division purchases 30,000 containers of carbonated water per day, on average, from a local supplier who delivers the water for $30 per container via an external shipper. To reduce costs, the company located an indepen¬dent producer in Iowa who is willing to sell 30,000 containers at $20 each, delivered to Diaz Company's shipping division in Iowa. The company's Shipping Division in Iowa has excess capacity and can ship the 30,000 containers at a variable cost of $2.50 per container.


 

     a.     $600,000
     b.     $675,000
     c.     $1,080,000
     d.     $1,215,000

     

162.     One reason companies use full-cost transfer pricing is that it provides:

     a.     relevant costs for long-run decisions even though poor short-run decisions may
          result
     b.     relevant costs for long-run decisions and for short-run decisions
     c.     relevant costs for short-run decisions even though poor long-run decisions may
result
     d.     relevant costs for short-run decisions at the expense of the company

LEARNING OBJECTIVE 8

163.     All of the following should be considered when determining transfer pricing except:

     a.     income or dividend payment restrictions
     b.     international taxation
     c.     currency exchange rates
     d.     import duties

164.     A division of Sarge Company is located in a country that places restrictions on the amount of funds that may be paid as dividends to foreign owners. If Sarge Company wishes to maximize the amount of cash received from the foreign division, Sarge Company should:

     a.     establish a high transfer price of goods transferred out of the country
     b.     establish a high transfer price of goods transferred into the country
     c.     establish a low transfer price of goods transferred out of the country
     d.     establish a low transfer price of goods transferred into the country

165.     The variable cost of Part X is $50 and the full cost of the part is $80. The part is produced in country Z and transferred to a plant in country B. Country A has a 30% income tax rate. Country B has a 50% income tax rate and an import duty equal to 10% of the price of the item. Part X can be transferred at full cost or variable cost. Assume that Part X is priced at full cost. The income tax effect per unit in country Z is:

a.     an increase in tax by $9 per unit
b.     a decrease in tax by $9 per unit
c.     an increase in tax by $24 per unit
d.     a decrease in tax by $24 per unit

     
The variable cost of Part X is $50 and the full cost of the part is $80. The part is produced in country A and transferred to a plant in country B. Country A has a 30% income tax rate. Country B has a 50% income tax rate and an import duty equal to 10% of the price of the item. Part X can be transferred at full cost or variable cost. Assume that Part X is priced at full cost. The income tax effect per unit in country B is:

a.     an increase in tax by $9 per unit
b.     a decrease in tax by $9 per unit
c.     an increase in tax by $15 per unit
d.     a decrease in tax by $15 per unit

     The variable cost of Part X is $50 and the full cost of the part is $80. The part is produced in country A and transferred to a plant in country B. Country A has a 30% income tax rate. Country B has a 50% income tax rate and an import duty equal to 10% of the price of the item. Part X can be transferred at full cost or variable cost. Assume that Part X is priced at full cost. The net tax effect is:

a.     an increase in tax by $9 per unit
b.     a decrease in tax by $15 per unit
c.     an increase in tax by $6 per unit
d.     a decrease in tax by $3 per unit

     

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