A.

Division A makes a part with the following characteristics:

Production capacity in units.................. 15,000 units

Selling price to outside customers....... $30

Variable cost per unit............................. $20

Fixed cost per unit.................................. $4

Total fixed costs...................................... $60,000

Division B, another division of the same company, would like to purchase 5,000 units of the part each period from Division A. Division B is now purchasing these parts from an outside supplier at a price of $28 each.

1.Suppose that Division A has ample idle capacity to handle all of Division B's needs without any increase in fixed costs and without cutting into sales to outside customers. If Division A refuses to accept the $28 price internally, the company as a whole will be:

A)worse off by $40,000 each period.

B)worse off by $20,000 each period.

C)better off by $10,000 each period.

D)worse off by $30,000 each period.

2. Suppose that Division A is operating at capacity and can sell all of its output to outside customers at its usual selling price. If Division A sells the parts to Division B at $28 per unit (Division B's outside price), the company as a whole will be:

A)better off by $20,000 each period.

B)worse off by $10,000 each period.

C)worse off by $40,000 each period.

D)There will be no change in the status of the company as a whole.

B.

Division T of Clocker Company makes a timer which it sells for $30 to outside customers. The division has supplied the following data concerning the timer:

Monthly capacity......................... 12,000 timers

Variable cost per unit................. $15

Fixed cost per unit...................... $10

Presently, Division S of Clocker Company is currently buying 5,000 similar timers each month from an overseas supplier at $27 each. Division S would like to acquire its timers from Division T if the price is right.

3.Suppose Division T is operating at capacity and can sell all of the timers it produces to outside customers at its usual selling price. According to the formula in the text, what is the lowest acceptable transfer price from the viewpoint of the selling division?

A)$30

B)$27

C)$25

D)$15

4.Suppose Division T is operating at capacity and can sell all of the timers it produces to outside customers at its usual selling price. If Division T meets the price of the overseas supplier and sells 5,000 timers to Division S each month, the effect on the monthly net operating income of the company as a whole will be:

A)increase of $15,000

B)decrease of $15,000

C)decrease of $60,000

D)increase of $10,000

5.Suppose that Division T can sell only 10,000 timers to outside customers. According to the formula in the text, what is the lowest acceptable transfer price from the viewpoint of the selling division?

A)$24

B)$27

C)$30

D)$15

C.

Division A of Tripper Company produces a part that it sells to other companies. Sales and cost data for the part follow:

Capacity in units.............................. 60,000

Selling price per unit....................... $40

Variable costs per unit.................... $28

Fixed costs per unit at capacity....$9

Division B, another division of Tripper Company, would like to buy this part from Division A. Division B is presently purchasing the part from an outside source at $38 per unit. If Division A sells to Division B, $1 in variable costs can be avoided.

6.Assume that Division A is presently operating at capacity. According to the formula in the text, what is the lowest acceptable transfer price from the viewpoint of the selling division?

A)$37

B)$39

C)$36

D)$38

7.Assume that Division A has ample idle capacity to handle all of Division B's needs without any increase in fixed costs and without cutting into outside sales. According to the formula in the text, what is the lowest acceptable transfer price from the viewpoint of the selling division?

A)$40

B)$39

C)$28

D)$27

D.

Division S of Kracker Company makes a part that it sells to other companies. Data on that part appear below:

Selling price on the intermediate market........ $30

Variable costs per unit....................................... $22

Fixed costs per unit (based on capacity)........ $7

Capacity in units............................................... 50,000

Division B, another division of Kracker Company, presently is purchasing 10,000 units of a similar product each period from an outside supplier for $28 per unit, but would like to begin purchasing from Division S.

8.Suppose that Division S has ample idle capacity to handle all of Division B's needs without any increase in fixed costs or cutting into sales to outside customers. If Division S refuses to accept a transfer price of $28 or less and Division B continues to buy from the outside supplier, the company as a whole will:

A)gain $20,000 in potential profit.

B)lose $60,000 in potential profit.

C)lose $70,000 in potential profit.

D)lose $20,000 in potential profit.

9.Suppose that Division S can sell all that it can produce to outside customers. If Division S sells to Division B at a price of $28 per unit, the company as a whole will be:

A)worse off by $80,000 each period.

B)worse off by $70,000 each period.

C)better off by $20,000 each period.

D)worse off by $20,000 each period.

Thanks :)