Question Details

Which of the different transfer-pricing methods 



1.	Which of the different transfer-pricing methods preserves sub-unit autonomy?
	a.	Market-based transfer pricing
	b.	Cost-based transfer pricing
	c.	Negotiated transfer pricing
	d.	Both (a) and (c)

		

2.	The minimum transfer price equals
	a.	opportunity costs less the additional outlay costs.
	b.	opportunity costs times 125% plus the additional outlay costs.
	c.	opportunity costs divided by the additional outlay costs.
	d.	incremental costs plus opportunity costs.

		

3.	The seller of Product A has no idle capacity and can sell all it can produce at $20 per unit. Outlay cost is $4. What is the opportunity cost, assuming the seller sells internally?
	a.	$4
	b.	$16
	c.	$20
	d.	$24

	
4.	Section 482 of the U.S. Internal Revenue Code governing the taxation of multinational transfer pricing recognizes that transfer prices can be
	a.	market based.
	b.	negotiated.
	c.	cost-plus based.
	d.	both (a) and (c).

5.	Soft Cushion Company is highly decentralized. Each division is empowered to make its own sales decisions. The Assembly Division can purchase stuffing, a key component, from the Production Division or from external suppliers. The Production Division has been the major supplier of stuffing in recent years. The Assembly Division has announced that two external suppliers will be used to purchase the stuffing at $20 per pound for the next year. The Production Division recently increased its unit price to $40. The manager of the Production Division presented the following information -- variable cost $32 and fixed cost $8 -- to top management in order to attempt to force the Assembly Division to purchase the stuffing internally. The Assembly Division purchases 20,000 pounds of stuffing per month.

	What would be the monthly operating advantage (disadvantage) of purchasing the goods internally, assuming the external supplier increased its price to $50 per pound and the Production Division is able to utilize the facilities for other operations, resulting in a monthly cash-operating savings of $30 per pound?
	a.	$1,000,000
	b.	$360,000
	c.	$(240,000)
	d.	$(400,000)




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