I. Computer Solutions Corporation manufactures and sells various high-tech office automation products. Two divisions of Office Products Inc. are the Computer Chip Division and the Computer Division. The Computer Chip Division manufactures one product, a "super chip," that can be used by both the Computer Division and other external customers. The following information is available on this month's operations in the Computer Chip Division:

Selling price per chip

P50

Variable costs per chip

P20

Fixed production costs

P60,000

Fixed SG&A costs

P90,000

Monthly capacity

10,000

chips

External sales

6,000

chips

Internal sales

0

chips

Presently, the Computer Division purchases no chips from the Computer Chips Division, but instead pays P45 to an external supplier for the 4,000 chips it needs each month.

Assume that next month's costs and levels of operations in the Computer and Computer Chip Divisions are similar to this month. What is the minimum of the transfer price range for a possible transfer of the super chip from one division to the other?

a.

P45

b.

P20

c.

P35

d.

P50

II. Computer Solutions Corporation manufactures and sells various high-tech office automation products. Two divisions of Office Products Inc. are the Computer Chip Division and the Computer Division. The Computer Chip Division manufactures one product, a "super chip," that can be used by both the Computer Division and other external customers. The following information is available on this month's operations in the Computer Chip Division:

Selling price per chip

P50

Variable costs per chip

P20

Fixed production costs

P60,000

Fixed SG&A costs

P90,000

Monthly capacity

10,000

chips

External sales

6,000

chips

Internal sales

0

chips

Presently, the Computer Division purchases no chips from the Computer Chips Division, but instead pays P45 to an external supplier for the 4,000 chips it needs each month.

Assume that next month's costs and levels of operations in the Computer and Computer Chip Divisions are similar to this month. What is the maximum of the transfer price range for a possible transfer of the chip from one division to the other?

a.

P50

b.

P35

c.

P30

d.

P45

III. Computer Solutions Corporation manufactures and sells various high-tech office automation products. Two divisions of Office Products Inc. are the Computer Chip Division and the Computer Division. The Computer Chip Division manufactures one product, a "super chip," that can be used by both the Computer Division and other external customers. The following information is available on this month's operations in the Computer Chip Division:

Selling price per chip

P50

Variable costs per chip

P20

Fixed production costs

P60,000

Fixed SG&A costs

P90,000

Monthly capacity

10,000

chips

External sales

6,000

chips

Internal sales

0

chips

Presently, the Computer Division purchases no chips from the Computer Chips Division, but instead pays P45 to an external supplier for the 4,000 chips it needs each month.

Two possible transfer prices (for 4,000 units) are under consideration by the two divisions: P35 and P40. Corporate profits would be ___________ if P35 is selected as the transfer price rather than P40.

a.

The same

b.

P20,000 larger

c.

P20,000 smaller

d.

P40,000 larger

IV. Computer Solutions Corporation manufactures and sells various high-tech office automation products. Two divisions of Office Products Inc. are the Computer Chip Division and the Computer Division. The Computer Chip Division manufactures one product, a "super chip," that can be used by both the Computer Division and other external customers. The following information is available on this month's operations in the Computer Chip Division:

Selling price per chip

P50

Variable costs per chip

P20

Fixed production costs

P60,000

Fixed SG&A costs

P90,000

Monthly capacity

10,000

chips

External sales

6,000

chips

Internal sales

0

chips

Presently, the Computer Division purchases no chips from the Computer Chips Division, but instead pays P45 to an external supplier for the 4,000 chips it needs each month.

If a transfer between the two divisions is arranged next period at a price (on 4,000 units of super chips) of P40, total profits in the Computer Chip division will

a.

drop by P20,000 compared to the prior period.

b.

drop by P40,000 compared to the prior period.

c.

rise by P20,000 compared to the prior period.

d.

rise by P80,000 compared to the prior period.

V. Beta Division had the following information:

Asset base in Beta Division

P400,000

Net income in Beta Division

P50,000

Weighted average cost of capital

12%

Target ROI

15%

Margin for Beta Division

20%

What is the return on investment of Beta Division?

a.

62.5%

b.

20.0%

c.

12.5%

d.

800.0%

VI. The following information pertains to the three divisions of Marlow Company:

Division X

Division Y

Division Z

Sales

?

?

1,250,000

Net operating income

P36,000

P25,000

P75,000

Average operating assets

300,000

?

?

Return on investment

?

20%

15%

Margin

0.10

0.05

?

Turnover

1.5

?

?

Target ROI

15%

12%

10%

What is the margin for Division Z?

a.

1.5%

b.

6.0%

c.

100.0%

d.

15.0%

VII. Beta Division had the following information:

Asset base in Beta Division

P400,000

Net income in Beta Division

P50,000

Weighted average cost of capital

12%

Target ROI

15%

Margin for Beta Division

20%

If the asset base is decreased by P100,000, with no other changes, the return on investment of Beta Division will be

a.

16.7%.

b.

62.5%.

c.

100.0%.

d.

600.0%.