Question 17 (1 point) X Company has two divisions, Fabricating and Assembly. The

Question

Question 17 (1 point) X Company has two divisions, Fabricating and Assembly. The Fabricating Division transfers partially completed components to the Assembly Division at a predetermined transfer price. The Fabricating Division's standard variable production cost is $200 per unit. Its full cost (variable cost plus allocated fixed overhead) to produce the component is $300 per unit. The Assembly Department can fill a special order for $350 per unit after incurring an additional cost of $60 per unit. The company uses the general transfer-pricing rule. The Fabricating Division has excess capacity. Check the box next to any of the following statements that is a true statement. Under the approach used by this company, the transfer price is $300. The manager of the Assembly Division would accept the special order because the Dvision would show a profit (Selling price of $350 per unit minus a total cost of $260 per unit.) 0 X Company's goal of increasing its profits is furthered if the manager of the Assembly Division accepts the special order.

Explanation / Answer

Question-17 Answer: As the Fabricating division is having the excess unused capacity so in this case the allocation of fixed expenses becomes a sunk cost and will not be considered in fixation of the transfer pricing for the assembly department,

Hence the Transfer Price for the same would be 200 and the Second Option is correct, which is The Manager of Assembly division would accept the special order because the division would show a Profit.

Question-18 Answer: COmmenting True or False at Each sentence.

True- An organizations goal congruence can be hindered if a division manager rejects a project with an ROI greater than the Organizations minimum required ROI but is less than the current ROI of the division manager.

False- As the Only evaluating the use of residual income will not be sufficient to understand the performance of differently sized division as in case of big division there might be less use of residual income or in the small division there might be a huge use of residual income. so the same cant be used in evaluating the divisions

False- In case of Calculating of company WACC COst of debt is after tax not cost of equity because cost of equity is itself calculated form profit after interest and taxes

True- Goal Congruence is definitely a factor while considering the TRansfer Price, keeping in mind the overall goal of the Company at first

True- An Internal Control system make a strict check on the variances, usage, and process to be followed so as to reduce the chances of error to the minimum, hence contributing in the congruence to the organizational goal.

True- A Kickback is a payment made to someone to facilitate something for his personal benefit. it is also considered as a fraud

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