Perrin Co has two divisions, A and B.
Division A has limited skilled labour and is operating at full capacity making product Y. It has been asked to supply a different product, X, to division B. Division B currently sources this product externally for $700 per unit.
The same grade of materials and labour is used in both products. The cost cards for each product are shown below:
Product Y X
($)/unit ($)/unit
Selling price 600 –
Direct materials ($50 per kg) 200 150
Direct labour ($20 per hour) 80 120
Apportioned fixed overheads ($15 per hour) 60 90
Using an opportunity cost approach to transfer pricing, what is the minimum transfer price?
Division B of a company makes units which are then transferred to other divisions. The division has no spare capacity. The following statements have been made regarding the minimum transfer price that will encourage the divisional manager of B to transfer units to other divisions:
(1) Any price above variable cost will generate a positive contribution, and will therefore be accepted.
(2) The division will need to give up a unit sold externally in order to make a transfer; this is only worthwhile if the income of a transfer is greater than the net income of an external sale.
Which of the above statement(s) is/are true?
'The use of residual income in performance measurement will avoid dysfunctional decision-making because it will always lead to the correct decision concerning capital investments.'
To prevent dysfunctional transfer price decision-making, profit centres must be allowed to make autonomous decisions. True or false?
Which of the following is not a disadvantage of using market value as a transfer price?
The following information relates to an investment centre, which is a separate product division in a large company.
$
Net current assets 60,000
Non-current assets 240,000
Profit before depreciation 50,000
Depreciation 10,000
The company's cost of capital is 10%. What is the most appropriate measure of the centre's Return on Investment (ROI)?
SWAL has two divisions, SW and AL, which operate as profit centres and have full autonomy in making, buying and selling decisions.
SW manufactures SW+ at a cost of $12 per unit. The market price of SW+ is $16 per unit.
AL uses SW+ in manufacturing its own product. The transfer price of SW+ when transferred from Division SW to Division AL is set at full production cost plus 20%.
Which one of the following independent circumstances represents dysfunctional behaviour arising from SWAL's transfer pricing policy?
The holder of a floating charge may protect their priority by including in the terms of the charge a clause that prevents the borrower from creating a fixed charge on the same asset.
What is the name given to such a clause?
Which TWO of the following are true concerning the registration of company charges?
(1) Charges must be registered within 21 days of creation
(2) If a charge is not registered on time then the company and its officers who created the charge are liable to a fine
(3) The Registrar of Companies is permitted to rectify a mistake in the registration documents of a charge with the permission of the chargeholder
(4) Non-registered charges are valid and enforceable with the permission of the Registrar of Companies
Which of the following is a right of the holder of a debenture that is secured by a fixed charge?