Colonial Computing Systems

Colonial Computing Systems manufactures and sells various computer products and has two decentralized divisions: (1) Production and (2) Marketing. The Marketing Division has always purchased a particular mouse from Production at $55 per unit. The Production Division is considering raising the price to $60 per unit. The Production Division's costs related to the mouse production is as follows:

Variable costs per unit:	$55
Monthly fixed costs:	$12,000

The Marketing Division handles the promotion and distribution of the mouse purchases from the Production Division and sells each mouse for $100. Marketing Division incurs monthly fixed costs of $5,000. Marketing Division sells 1,500 units per month. Marketing Division can buy the same mouse from outside suppliers for $60. If the Marketing Division purchases the mouse from outside suppliers, the facilities the Production Division uses to manufacture the mouse would remain idle.

29. Refer to Colonial Computing Systems. The Production Division is operating at maximum capacity because of strong worldwide demand for the product. What should be the mouse transfer price between the Production Division and Marketing Division in order for Colonial to optimize profits?

a.	$ 60
b.	$ 55
c.	$ 50
d.	$100

30. What transfer pricing mechanism generally applies a normal markup to costs as a surrogate for market prices when intermediate market prices are not available?

a.	Fixed price-based transfer pricing
b.	Full-absorption costing
c.	Activity-based costing
d.	Cost-plus transfer pricing

31. Because tax rates are different in different countries, companies have incentives to set transfer prices that will

a.	increase revenues in low-tax countries and increase costs in high-tax countries.
b.	increase costs in low-tax countries and increase revenues in high-tax countries.
c.	decrease costs in high-tax countries and decrease revenues in low-tax countries.
d.	None of the answers is correct.

32. In calculating return on investment (ROI), when measuring the investment base most firms use

a.	acquisition cost.
b.	net book value.
c.	replacement cost.
d.	MCRS depreciated value.