MCQs

If the repair division had idle capacity, what is the minimum transfer price per hour that the repair division should obtain?
$28.50
$30.00
$39.00
$46.50
$48.00

Arrow Industries employs a standard cost system in which direct materials inventory is carried at standard cost. Arrow has established the following standards for the prime costs of one unit of product.
standard quantity standard price standard price
direct materials 8 pounds $1.80 per pound $14.40
direct labor .25 hour $8.00 per hour 2.00 =$16.40
During November, Arrow purchased 160,000 pounds of direct materials at a total cost of $304,000. The total factory wages for November were $42,000, 90% of which were for direct labor. Arrow manufactured 19,000 units of product during November using 142,500 pounds of direct materials and 5,000 direct labor hours.
What is the direct materials price variance for November? (Do not round your intermediate calculations.)
$14,250
$14,400
$16,000
$17,100

Is the direct materials price variance favorable or unfavorable?
favorable
unfavorable

What is the direct materials efficiency (quantity) variance for November?
$14,250
$14,400
$16,000
$17,100

Is the direct materials efficiency (quantity) variance favorable or unfavorable?
favorable
unfavorable

What is the direct labor price (rate) variance for November?
$1,800
$1,900
$2,000
$2,090
$2,200

Is the direct labor price (rate) variance favorable or unfavorable?
favorable
unfavorable

What is the direct labor efficiency variance for November?
$1,800
$1,900
$2,000
$2,090
$2,200

Is the direct labor efficiency variance favorable or unfavorable?
favorable
unfavorable

actual machine hours 840
standard machine hours allowed 900
denominator activity (machine hours) 1,000
actual fixed overhead cost $3,800
budgeted fixed overhead cost $4,000
predetermined overhead rate ($1 variable + $4 fixed) $5
What is the fixed overhead spending (budget) variance?
$200
$400
$300
$240

Is the fixed overhead spending (budget) variance favorable or unfavorable?
favorable
unfavorable

What is the production volume variance?
$200
$400
$300
$240

Is the production volume variance favorable or unfavorable?
favorable
unfavorable

Chipper Division of Acme Corp. sells 80,000 units of part Z-25 to the outside market. Part Z-25 sells for $40, has a variable cost of $22, and a fixed cost per unit of $10. Chipper has a capacity to produce 100,000 units per period. Jones Division currently purchases 10,000 units of part Z-25 from Chipper for $40. Jones has been approached by an outside supplier willing to supply the parts for $36. If Acme uses a negotiated transfer pricing system, what is the minimum transfer price that should be charged for this transaction?
$40
$36
$32
$22

Avery Corporation has two divisions, A and B, which are both organized as profit centers; Division A produces and sells widgets to Division B and to outside customers. Division A has total costs of $35, $20 of which are variable. Division A is operating significantly below capacity and sells the widgets for $50.
Division B has received an offer from an outsider vendor to supply all the widgets it needs (20,000 widgets) at a cost of $45. The manager of Division B is considering the offer but wants to approach Division A first
What would be the profit impact to Avery Corporation as a whole if Division B purchased the 20,000 widgets it needs from the outside vendor for $45?
no change in profit to Avery.
$100,000 increase in profits.
$100,000 decrease in profits.
$500,000 decrease in profits

What is the minimum transfer price from Division A to Division B?
$20
$35
$45
$50

What is the maximum transfer price from Division A to Division B?
$20
$35
$45
$50

Cruises, Inc., operates two divisions: (1) a management division that owns and manages cruise ships in the Florida Keys and (2) a repair division that operates a dry dock in Marble Sand Florida. The repair division works on company ships, as well as other large-hull ships.
The repair division has an estimated variable cost of $28.50 per labor-hour. The repair division has a backlog of work for outside ships. They charge $48.00 per hour for labor, which is standard for this type of work. The management division complained that it could hire its own repair workers for $30.00 per hour, including leasing an adequate work area.
What is the minimum transfer price per hour that the repair division should obtain for its services, assuming it is operating at capacity?
$28.50
$30.00
$39.00
$46.50
$48.00

What is the maximum transfer price per hour that the management division should pay?
$28.50
$30.00
$39.00
$46.50
$48.00