nt Paragraph IS Styles 6 6. Division A, an investment center, has operating income = $10,000 for the prior period. The residual income during this period is $10,000. If Division A's investment assets = $150,000, then cost of capital set by the corporation's top management must be: a 12% C25% b. 15% d. 20% 7. A division manager is considering investing in a new product. The division's income is currently $960,000 with operating assets of $16 million. The new product would increase income by $540,000 and would require an additional investment in equipment of $3 million. The ROI of the division before and after the investment is respectively. a 6% and 18% c. 7.9% and 18% b. 6% and 7.9% d. 7.9% and 6% For the following questions (8-10) about transfer pricing, assume the organization is X Co. Division S produces a component that can be sold to outside customers at a fair market price or to Division B at a transfer price. Division B uses the component to produce a finished product it sells to outside customers. Division B can also purchase the component from an outside supplier, Co. O at a fair market price. 8. Division S produces a small motor that can be used in Division B's final product. B has been purchasing the motor from Co. O for $84/unit. Division S's manager has approached the manager of Division B about selling these motors to Division B. Division Sincurs these unit costs: Direct materials $16, Direct labor $8. Variable overhead $6. Fixed overhead $24 Currently, Division Scan produce 150,000 motors but is only producing 120,000. Div. B needs 20,000 units per year. The maximum/minimum transfer price should be respectively: a $84/30 c. $84/54 b. $54/24 d. $30/24