Question

1.) pricing method based on product cost is cost of goods sold pricing. net income pricing....

1.) pricing method based on product cost is

cost of goods sold pricing.

net income pricing.

gross margin pricing.

inventory pricing.

2.)A common problem associated with transfer pricing occurs when

a division purchases inputs for processing from an outside source at a price higher than the internal transfer price.

the gross margin pricing method is used to compute the price.

a division sells its excess output to an external customer.

managers do not agree with the transfer prices of the inputs provided to them or of the outputs of their own division.

3.)Whitney Company treats each division as a profit center and expects a 20 percent profit on its total production costs. Division A produces a part that it sells externally for $19.00. It also supplies this part to other internal divisions. Its production cost for the part is $13.70. What should be the transfer price for the part using the market-price approach?

$16.35

$16.44

$19.00

$22.80

4.) Whitney Company treats each division as a profit center and expects a 20 percent profit on its total production costs. Division A produces a part that it sells externally for $19. It also supplies this part to other internal divisions. Its variable production cost for the part is $13.70. What should be the transfer price for the part using the negotiated-price approach, assuming a mid-point between the floor and ceiling is agreed upon?

$16.35

$16.44

$17.72

$19.00

Business   Accounting   
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Homework Answers

Answer #1

1. Cost of goods sold pricing method ia based on product cost.

2. A common problem associated with transfer pricing occurs when managers do not agree with the transfer prices of input provided to them or of the outputs of their own division.

3. In market price approach the transfer price is remain equal to the price charged to external customers.

So answer is $19 ( option c)

4. Under negotiated transfer pricing a middle price is choosen so that each department earns profit.

Floor price :- $13.70* 120% = $16.44

Ceiling price :- $19 ( external sale price )

So transfer price should be between these and that will be

$ 17.72 ( option C )

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