Reference no: EM132666320

Problem 1: Under the negotiated price approach of setting transfer prices, an increase in the purchasing division's operating income is calculated as:

a. (Market price - Transfer price) × Units transferred.

b. (Variable cost per unit - Transfer price) × Units transferred.

c. (Transfer Price - Fixed factory overhead) × Units transferred.

d. (Transfer price - Variable cost per unit) × Units transferred.

Problem 2: Which of the following statements is true if variable product cost per unit is used under the cost price approach to set transfer prices?

a. If variable product cost per unit is used under the cost price approach to set transfer prices, direct labor cost is excluded from transfer price.

b. If variable product cost per unit is used under the cost price approach to set transfer prices, direct materials and direct labor are excluded from transfer price.

c. If variable product cost per unit is used under the cost price approach to set transfer prices, fixed factory overhead cost is excluded from transfer price.

d. If variable product cost per unit is used under the cost price approach to set transfer prices, direct materials cost is excluded from transfer price.