Sorenson Products Has Two Divisions: a Kitchen Wares Division That

question 149

Multiple Choice

Sorenson Products has two divisions: a kitchen wares division that manufactures ceramic dishes and a ceramic resin division that manufactures the resin used in creating ceramic products. All ceramic used by the kitchen wares division is supplied by the ceramic resin division, which also supplies resin to outside companies. What is the best transfer price for the resin, assuming that the resin division is operating at only 70 percent of capacity?

• A) An amount that equates to the variable costs plus the contribution margin of the resin
• B) An amount that equates to the market price of the resin
• C) An amount that equates to the incremental cost of the resin
• D) An amount that equates to the full cost of the resin

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Definitions:

Critical Value

A point on a statistical distribution that represents the threshold for significance testing, helping decide whether to reject the null hypothesis.

Alpha

The pre-determined significance level in hypothesis testing, often set at 0.05, which defines the likelihood of observing a result at least as extreme as the one seen in the sample data if the null hypothesis is true.

T-statistic

A type of statistic used in hypothesis testing, calculated as the ratio of the departure of an estimated parameter from its hypothesized value to its standard error.

Critical Value

A threshold in hypothesis testing, which the test statistic must exceed to reject the null hypothesis.