All of the following objectives are reasons to allocate service department costs to compute full cost except to
a. provide information on cost recovery.
b. abide by regulations that may require full costing in some instances.
c. provide information on controllable costs.
d. reflect production's "fair share" of costs.
Question text
To avoid waste and maximize efficiency when transferring products among divisions in a competitive economqc], a large diversified corporation should base transfer prices on
a.
production cost.
b.
market price.
c.
variable cost.
d.
full cost.
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The correct answer is: market price.
Question 66
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Question text
Tulsa Corporation has excess capacity. If the firm desires to implement the general transfer-pricing rule, opportunity cost would be equal to:
a.
the sum\ation of variable cost plus fixed cost.
b. the total difference in the cost of production between two divisions.
c. the direct expenses incurred in producing the goods.
d. the contribution margin forgone from the lost external sale.
e. zero.
Question text
The Milrose Clinic has two service departments (Human Resources and Information Resources) and two "production" departments (In-patient Treatment and Out-patient Treatment). The service departments service each other, and studies have shown that Information Resources provides the greater amount of service. Which of the following allocations would occur if Milrose uses the direct method of cost allocation?
a. Information Resources cost would be allocated to Human Resources.
b. Out-patient Treatment cost would be allocated to Information Resources.
c. In-patient Treatment cost would be allocated to Out-patient Treatment.
d. Human Resources cost would be allocated to Information Resources.
e. Information Resources cost would be allocated to In-patient Treatment.
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