Question 1

Division Delta of Golvin Corporation makes and sells a single product which is used by manufacturers of fork lift trucks.Presently it sells 9,000 units per year to outside customers at $57 per unit.The annual capacity is 10,000 units and the variable cost to make each unit is $32.Division Echo of Golvin Corporation would like to buy 2,000 units a year from Division Delta to use in its products.There would be no cost savings from transferring the units within the company rather than selling them on the outside market.What should be the lowest acceptable transfer price from the perspective of Division Delta?

Accepted Answer

A)   $57.00 per unit
B)   $19.50 per unit
C)   $34.50 per unit
D)   $32.00 per unitE) A) and B)
F) B) and D)

Question 2

(Appendix 11A)  Tommasino Products, Inc., has a Motor Division that manufactures and sells a number of products, including a standard motor that could be used by another division in the company, the Automotive Division, in one of its products. Data concerning that motor appear below:
  The Automotive Division is currently purchasing 9,000 of these motors per year from an overseas supplier at a cost of $72 per motor.
-Assume that the Motor Division is selling all of the motors it can produce to outside customers.Does there exist a transfer price that would make both the Motor and Automotive Division financially better off than if the Automotive Division were to continue buying its motors from the outside supplier?

Accepted Answer

A)   The answer cannot be determined from the information that has been provided.
B)   Yes, both divisions are always better off regardless of whether the selling division has enough idle capacity to handle all of the buying division's needs.
C)   No, the minimum transfer price that the selling division should be willing to accept exceeds the maximum transfer price that the buying division should be willing to accept.
D)   Yes, the minimum transfer price that the selling division should be willing to accept is less than the maximum transfer price that the buying division should be willing to accept.E) All of the above
F) None of the above

Exam 26: Transfer Pricing

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Exam 26: Transfer Pricing

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Correct Answer
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