1. Which transfer pricing approach is sometimes used when a selling division, with excess capacity, wants to reflect the divisions true profitability?

a) market-based transfer pricing

b) full cost-based transfer pricing

c) standard cost-based transfer pricing

d) negotiated transfer pricing

2. The negotiated transfer price is determined as follows:

a) decision taken by the board of directors.

b) negotiated by division managers.

c) based on market conditions.

d) none of the above.

3. Variable cost-plus pricing provides the type of data that managers need for pricing

a) special orders.

b) interdepartmental transfers.

c) services.

d) international orders.

4. With absorption cost-plus pricing, which costs are excluded from the cost base?

a) variable selling and administrative costs

b) fixed selling and administrative costs

c) fixed and variable selling and administrative costs

d) all fixed costs

5. With absorption cost-plus pricing, when using manufacturing cost per unit as the cost base to calculate the markup percentage, the percentage must cover

a) the desired ROI.

b) selling and administrative costs.

c) neither the desired ROI nor the selling and administrative costs.

d) both the desired ROI and the selling and administrative costs.

6. Under variable cost-plus pricing, the cost base consists of

a) all variable costs.

b) variable manufacturing costs.

c) variable selling and administrative costs.

d) all manufacturing costs.

7. Circuit Electrical Company provides the following cost information for its production of electronic circuit boards.

$ Per Unit

Total manufacturing cost 80

Variable selling and administrative expenses 8

Fixed selling and administrative expenses 24

Desired ROI 20

What is its markup percentage, assuming that Circuit Electrical Company uses the absorption-cost-plus approach?

a) 55.00%

b) 50.00%

c) 65.00%

d) 165.75%

8. Calculate the target selling price that Circuit Electrical Company should charge, using the information provided in Question 7.

a) $112.00

b) $134.40

c) $100.00

d) $132.00

9. Focus Machines Ltd. is developing a new style of laser printer. The initial prototype had a cost of $159. Unfortunately, market research shows that the company can charge only $150 for such a machine. Research and development believe they can reduce the cost substantially by using a different production process. Focus Machines requires a rate of return equal to 20% of the selling price. Calculate the target cost for the new printer.

a) $120.00

b) $127.20

c) $129.00

d) $150.00

10. Carpet Landscaping is a small company that uses time-and-material pricing when billing out the landscaping work they do. They employ one landscape architect who manages all the projects. For the upcoming year they have budgeted the following for their service department.

Architects salary and benefits $110,000

Technicians wages and benefits $230,000

Supervisors salary and benefits $60,000

Overhead $165,000

Materials $400,000

Profit margin per hour of labour $30

Profit margin on parts 20%

Expected service hours 5,000

Calculate the rate to be charged per hour.

a) $80

b) $110

c) $98

d) $76

11. Reliable Corporation has two divisions: A and B. B produces a computer component that it sells for $80 per unit. It has the following per unit costs: direct materials, $23; direct labour, $15; variable overhead, $3; fixed overhead, $10. B is operating at 60% capacity based on a total capacity of 100,000 units. A Division is purchasing 10,000 of the same component from an outside seller for $75 per unit. What is the benefit, if any, to the company if B sells 10,000 units to A.

a) $0

b) $50,000

c) $290,000

d) $340,000

12. Busy Corporation produces and sells a talking teddy-bear with the following costs per unit: direct materials, $9; direct labour, $22; variable manufacturing overhead, $11; fixed manufacturing overhead, $13; variable selling and administrative expenses, $5; and fixed selling and administrative expenses, $10. The company expects a rate of return of $20 per unit.

What is the mark-up percentage using absorption-costing pricing?

a) 38.89%

b) 61.11%

c) 63.64%

d)157.14%

13. Busy Corporation produces and sells a talking teddy-bear with the following costs per unit: direct materials, $9; direct labour, $22; variable manufacturing overhead, $11; fixed manufacturing overhead, $13; variable selling and administrative expenses, $5; and fixed selling and administrative expenses, $10. The company expects a rate of return of $20 per unit.

If the selling price is $90, and they use variable-costing pricing, what is their mark-up percentage.

a) 52.22%

b) 63.64%

c) 91.49%

d) 109.30%