# 31 assume the transfer price for a pair of soles is 180 of total costs of the sole d 4302601

31) Assume the transfer price for a pair of soles is 180% of total costs of the Sole Division and 40,000 of soles are produced and transferred to the Assembly Division. The Sole Division's operating income is:

A) $320,000

B) $360,000

C) $248,000

D) $440,000

E) $400,000

32) If the Assembly Division sells 100,000 pairs of shoes at a price of $60 a pair to customers, what is the operating income of both divisions together?

A) $4,400,000

B) $3,400,000

C) $3,000,000

D) $2,600,000

E) $2,400,000

*Answer the following question(s) using the information below.*

Cool Air Ltd. manufactures only one type of air conditioner and has two divisions, the Compressor Division, and the Assembly Division. The Compressor Division manufactures compressors for the Assembly Division, which completes the air conditioner and sells it to retailers. The Compressor Division “sells” compressors to the Assembly Division. The market price for the Assembly Division to purchase a compressor is $77. (Ignore changes in inventory.) The fixed costs for the Compressor Division are assumed to be the same over the range of 5,000-10,000 units. The fixed costs for the Assembly Division are assumed to be $15.00 per unit at 10,000 units.

*Compressor's costs per compressor are*:

Direct materials |
$34.00 |

Direct labour |
$14.50 |

Variable overhead |
$6.00 |

Division fixed costs |
$15.00 |

*Assembly's costs per completed air conditioner are*:

Direct materials |
$300.00 |

Direct labour |
$125.00 |

Variable overhead |
$40.00 |

Division fixed costs |
$15.00 |

33) What is the market-based transfer price per compressor from the Compressor Division to the Assembly Division?

A) $34.00

B) $54.50

C) $69.50

D) $77.00

E) $115.50

34) What is the transfer price per compressor from the Compressor Division to the Assembly Division if the method used to place a value on each compressor is 150% of variable costs?

A) $81.75

B) $77.00

C) $9.00

D) $72.75

E) $51.00

35) What is the transfer price per compressor from the Compressor Division to the Assembly Division if the transfer price per compressor is 110% of full costs?

A) $84.70

B) $80.00

C) $76.45

D) $59.95

E) $77.00

36) Assume the transfer price for a compressor is 150% of total costs of the Compressor Division and 1,000 of the compressors are produced and transferred to the Assembly Division. The Compressor Division's operating income is:

A) $31,750

B) $32,750

C) $34,750

D) $36,500

E) $49,750

37) If the Assembly Division sells 1,000 air conditioners at a price of $750.00 per air conditioner to customers, what is the operating income of both divisions together?

A) $200,500

B) $207,000

C) $194,000

D) $165,750

E) $230,500

38) For each of the following transfer price descriptions or operating situations, tell which of the general methods of transfer pricing it is probably categorized as:

a.Bargaining between selling and buying units.

b.Budgeted costs.

c.145% of full costs.

d.Internal product transfers are required if goods are available internally.

e.Manufacturing plus marketing plus distribution plus customer service costs.

f.Prices listed in a trade journal.

g.Selling price less normal sales commissions.

h.Variable manufacturing cost plus a mark-up.