Financial Modeling and Forecasting 3

Question 1

transfer pricing options

Answer 1

Full cost
Market price
Dual transfer pricing

Question 2

full cost option includes

Answer 2

transferring a product from one division to another at the first division’s full absorption cost, which includes fixed costs.

Question 3

This method can lead to

Answer 3

reduced morale and rejection of otherwise viable special projects

Question 4

Market price

Answer 4

should be reduced to reflect costs savings from not transferring the product to an outside customer

Question 5

Dual transfer pricing

Answer 5

allows the transferring division to record one price, and the receiving division to record another

Question 6

Dual transfer pricing can

Answer 6

reduce issues related to morale and unnecessary rejection of special orders

Question 7

When applying Cost Volume Profit to a specific case the underlying assumptions are presumed

Answer 7

1) selling price does not change with activity level
2) The sales mix remains constant
3) Cost can be separated into fixed and variable elements
4) Total fixed cost are constant
5) Variable costs per unit are constant

Question 8

Cannibalization

Answer 8

erosion in cash flow to existing projects