chapter 11: Transfer Pricing

Question 1

Full Capacity Definition

Answer 1

making all it can( no excess capacity

Question 2

If a company is at full capacity, what do they have to do to expand capacity?

Answer 2

-build a new factory

Question 3

Idle Capacity Definition

Answer 3

ability to make more(excess capacity)

Question 4

Minimum Transfer

Answer 4

where seller is neutral about selling within the organization or externally

Question 5

Full Capacity Formula

Answer 5

market price- avoidable costs

Question 6

Idle Capacity Formula

Answer 6

variable cost - avoidable costs

Question 7

Avoidable Costs

Answer 7

are costs would disappear under one alternative and not the other. In other words, costs savings are avoidable costs. In this chapter, it relates to costs that the seller would not incur due to selling to a sister company…things like advertising, shipping,etc. We must be told if there are avoidable costs.

Question 8

The maximum transfer price(the most buyer is willing to pay) is

Answer 8

ALWAYS what the buyer is currently paying

Question 9

Seller>Buyer

Answer 9

no transfer likely

Question 10

Seller<Buyer

Answer 10

price in this range can most likely be negotiated

Question 11

Cost Savings are

Answer 11

Avoidable Costs

Question 12

@Idle Breakdown

Answer 12

Seller: minimum price is VC

Buyer’s Maximum Price: price from outside distributors

Question 13

@ Capacity Breakdown

Answer 13

Seller’s Min Price: Current Price

Buyer’s Maximum: Price from Outside Distributors

Question 14

The Steps?

Answer 14

………………..

Question 15

How do we know if there are avoidable costs?

Answer 15

WE MUST BE TOLD!!!!