In the Bombadier Company, Division A has a product that can be sold either to outside customers or to Division B. Information about these divisions is given below:

Case 1 Case 2

Division A:

Capacity in units 100,000 100,000

Number of units sold externally 100,000 60,000

Market selling price $90 $75

Variable costs per unit 73 58

Fixed costs per unit based on capacity 10 10

Division B:

Number of units needed for production 40,000 40,000

Purchase price per unit from external supplier $86 $74

The company uses the opportunity cost approach to transfer pricing. Which case should not be transferred internally?

a.Both should be transferred internally.

b.Neither should be transferred internally.

c.Case 2

d.Case 1

Panther Company had the following historical accounting data per unit:

Direct materials $60

Direct labor 30

Variable overhead 15

Fixed overhead 24

Variable selling expenses 45

Fixed selling expenses 9

The units are normally transferred internally from Division A to Division B. The units also may be sold externally for $210 per unit. The minimum profit level accepted by the company is a markup of 30 percent. There were no beginning or ending inventories.

If the negotiated price is used, Division A's transfer price should be a

a.maximum of $210.00.

b.maximum of $198.90.

c.minimum of $153.00.

d.minimum of $120.00.

Which of the following is a disadvantage of both residual income and ROI?

a.They both do not discourage myopic behavior.

b.They are both absolute measures of return.

c.They are both difficult to calculate.

d.All of these choices are disadvantages of both ROI and residual income.