19) 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) $40.88

B) $38.50

C) $4.50

D) $36.38

20) 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) $42.35

B) $40.00

C) $38.23

D) none of the items

21) 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) $15,875

B) $16,375

C) $17,375

D) $18,250

22) If the Assembly Division sells 1,000 air conditioners at a price of $375.00 per air conditioner to customers, what is the operating income of both divisions together?

A) $100,250

B) $103,500

C) $97,000

D) $82,875

Answer the following questions using the information below:

Division A sells ground veal internally to Division B, which in turn, produces veal burgers that sell for $10 per pound. Division A incurs costs of $1.50 per pound while Division B incurs additional costs of $5.00 per pound.

23) What is Division A's operating income per pound, assuming the transfer price of the ground veal is set at $2.50 per pound?

A) $1.00

B) $1.75

C) $2.50

D) $3.25

24) Which of the following formulas correctly reflects the company's operating income per pound?

A) $10.00 – ($1.50 + $5.00) = $3.50

B) $10.00 – ($2.50 + $5.00) = $2.50

C) $10.00 – ($1.50 + $7.50) = $1.00

D) $10.00 – ($0.50 + $2.50 + $7.00) = 0

25) A transfer price is the price one subunit charges for a product or service supplied to another subunit of the same organization.

26) The choice of a transfer-pricing method has minimal effect on the allocation of company-wide operating income among divisions.

27) No matter how low the transfer price, the manager of the selling division should sell the division's product to other company divisions in the interests of overall company profitability.

28) The costs used in cost-based transfer prices can only be budgeted costs.