The AB division sells goods internally to the CD division of the same company. The quoted external price in industry publications from a supplier near AB is P200 per ton plus transportation. It costs P20 per ton to transport the goods to CD. AB’s actual market cost per ton to buy the direct materials to make the transferred product is P100. Actual per ton direct labor is P50. Other actual costs of storage and handling are P40. The company president selects a P220 transfer price. This is an example of: Cost-based transfer pricing. Cost plus 20% transfer pricing. Market-based transfer pricing. Negotiated transfer pricing

The AB division sells goods internally to the CD division of the same company. The quoted external price in industry publications from a supplier near AB is P200 per ton plus transportation. It costs P20 per ton to transport the goods to CD. AB’s actual market cost per ton to buy the direct materials to make the transferred product is P100. Actual per ton direct labor is P50. Other actual costs of storage and handling are P40. The company president selects a P220 transfer price. This is an example of: Cost-based transfer pricing. Cost plus 20% transfer pricing. Market-based transfer pricing. Negotiated transfer pricing

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter18: Pricing And Profitability Analysis

Section: Chapter Questions

Problem 14E: Many different businesses employ markup on cost to arrive at a price. For each of the following...

See similar textbooks

Related questions

Q: Division A makes a part that it sells to customers outside of the company. Data concerning this part…

A: Lets understand the basics. When transfer happens between the various departments of the company…

Q: This Little Light, Inc. is a manufacturer of lamps. Little Light makes 40,000 units per year of a…

A: Indifference point (IDP) = Differential Fixed costs/Differential Variable cost per unit In other…

Q: Wattle Limited has two divisions: Industry and Consumer. The Industry Division transfers partially…

A: Part (a) The general rule of transfer pricing says that if the organization has idle capacity, then…

Q: Lowwater Sailmakers manufactures sails for sailboats. The company has the capacity to produce 25,000…

A: Variable cost means the cost which vary with the level of output where as fixed cost remain fixed…

Q: NUBD's shop can make 1,000 units of a necessary component with the following costs: Direct materials…

A: Formula: Total fixed component = Fixed overhead + Unavoidable overhead

Q: Plish Company manufactures only one type of washing machine and has two divisions, the Compressor…

A: Introduction:- Calculation if transfer price for a compressor is 150% of total costs of the…

Q: Vista Company manufactures electronic equipment. It currently purchases the special switches used in…

A: Break-even point = Fixed Cost/Contribution per unit,At Indifferent point, totalcost of both machines…

Q: Company E has two divisions, Division A and Division B. Division A is currently buying Component X…

A: Full cost transfer price = variable cost + fixed costs

Q: Vista Company manufactures electronic equipment. It currently purchases the special switches used in…

A: Break even point is the level of cost where there is no profit or loss situation, it means cost and…

Q: Rooney Electronics currently produces the shipping containers it uses to deliver the electronics…

A: When choosing whether to create a product domestically or purchase it from a third party, a…

Q: Washington Company has two divisions, Jefferson and Adams. Jefferson produces an item that Adams…

Q: Cobe Company has manufactured 230 partially finished cabinets at a cost of $57,500. These can be…

A: Incremental Analysis :— This analysis shows the comparison between two different alternatives. A…

Question

Cost-based transfer pricing.

Cost plus 20% transfer pricing.

Market-based transfer pricing.

Negotiated transfer pricing.

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Similar questions

Many different businesses employ markup on cost to arrive at a price. For each of the following situations, explain what the markup covers and why it is the amount that it is. a. Department stores have a markup of 100 percent of purchase cost. b. Jewelry stores charge anywhere from 100 percent to 300 percent of the cost of the jewelry. (The 300 percent markup is referred to as keystone.) c. Johnson Construction Company charges 12 percent on direct materials, direct labor, and subcontracting costs. d. Hamilton Auto Repair charges customers for direct materials and direct labor. Customers are charged 45 per direct labor hour worked on their job; however, the employees actually cost Hamilton 15 per hour.
The Eastern division sells goods internally to the Western division of the same company. The quoted external price in industry publications from a supplier near Eastern is $200 per ton plus transportation. It costs $20 per ton to transport the goods to Western. Eastern's actual market cost per ton to buy the direct materials to make the transferred product is $100. Actual per ton direct labor is $50. Other actual costs of storage and handling are $40. Assuming there is an excess capcity in the Eastern Division, the minimum and maximum transfer price are:
Westwood Components incurs $18 in variable costs and $6 in allocated fixed costs to produce a product that sells for $32 per unit. A customer in Mexico offers to purchase 2,000 units at $21 each. Westwood Components has excess capacity and can handle the additional production. What effect will acceptance of the offer have on net income?
Division A makes a part that it sells to customers outside of the company. Data concerning this part appear below: Selling price to outside customers Variable cost per unit Total fixed costs Capacity in (units) Division B of the same company would like to use the part manufactured by Division A in one of its products. Division B currently purchases a similar part made by an outside company for $74 per unit and would substitute the part made by Division A. Division B requires 5,200 units of the part each period. Division A can already sell all of the units it can produce on the outside market. What should be the lowest acceptable transfer price from the perspective of Division A? e to search Multiple Choice $71 $77 4 $ 77 $ 55 $ 432,000 27,000 O Ai 21. 37°F Cloudy ^4.
Crane Company uses 9000 units of Part A in producing its products. A supplier offers to make Part A for $5. CraneCompany has relevant costs of $8 a unit to manufacture Part A. If there is excess capacity, the relevant cost of buying Part A from the supplier is $72000. $45000. $27000. $0.
Jamison Company uses the total cost method of applying the cost-plus approach to product pricing. Jamison produces and sells Product X at a total cost of $1,500 per unit, of which $1020 is product cost and $480 is selling and administrative expenses. In addition, the total cost of $1,500 is made up of $850 variable cost and $650 fixed cost. The desired profit is $210 per unit. Determine the markup percentage on total cost. %
Kraft Products incurs $14 in variable costs and $8 in allocated fixed costs to produce a component that sells for $32 per unit. A distributor in Mexico offers to purchase 2,400 units at $19 each. Kraft Products has excess capacity and can handle the additional production. What effect will acceptance of the offer have on net income?
Baldwin Corporation incurs a cost of $42.75 per unit, of which $25.40 is variable, to make a product that normally sells for $64.90. A foreign wholesaler offers to buy 5,800 units at $37.60 each. Baldwin will incur additional costs of $3.20 per unit to imprint a logo and to pay for shipping. Compute the increase or decrease in net income Baldwin will realize by accepting the special order, assuming the company has sufficient excess operating capacity.
Marquette Products incurs a cost of $40.25 per unit, of which $24.00 is variable, to make a product that normally sells for $63.00. A foreign distributor offers to buy 5,400 units at $36.50 each. Marquette will incur additional costs of $3.10 per unit for labeling and shipping. Assume the company has sufficient excess capacity. What is the effect on net income if Marquette accepts the special order?
Division A makes a part that it sells to customers outside of the company. Data concerning this part appear below: Selling price to outside customers $ 75 Variable cost per unit $ 50 Total fixed costs $ 400,000 Capacity in (units) 25,000 Division B of the same company would like to use the part manufactured by Division A in one of its products. Division B currently purchases a similar part made by an outside company for $70 per unit and would substitute the part made by Division A. Division B requires 5,000 units of the part each period. Division A can already sell all of the units it can produce on the outside market. What should be the lowest acceptable transfer price from the perspective of Division A? Multiple Choice $75. $66. $50. $16.
Nikul
Kando Company incurs a $9.00 per unit cost for Product A, which it currently manufactures and sells for $13.50 per unit. Instead of manufacturing and selling this product, the company can purchase it for $5.00 per unit and sell it for $10.30 per unit. If it does so, unit sales would remain unchanged and $5.00 of the $9.00 per unit costs of Product A would be eliminated. 1. Prepare Incremental cost analysis. Should the company continue to manufacture Product A or purchase it for resale? (Round your answers to 2 decimal places.) Selling price per unit Cost per unit to make Cost per unit to buy Cost per unit not eliminated if bought Income per unit Company should Make Buy