Calculate and Compare the Difference in Overall Corporate Net Income

question 31

Multiple Choice

Calculate and compare the difference in overall corporate net income of Branded Shoe Company between Scenario A and Scenario B if the Assembly Division sells 100,000 pairs of shoes for $120 per pair to customers.
Scenario A: Negotiated transfer price of $30 per pair of soles
Scenario B: Market-based transfer price

• A) $1,000,000 more net income under Scenario A
• B) $1,000,000 of net income using Scenario B
• C) $200,000 of net income using Scenario A.
• D) The net income would be the same under both scenarios.

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Definitions:

Equity Sensitivity

An individual difference in preference for equity or fairness in social exchange situations, affecting their reactions to perceived inequities.

Entitleds

Individuals who believe they deserve certain privileges or treatment irrespective of their actual achievements or contributions.

Overreward Inequity

A situation where an individual perceives they are receiving more rewards than what their efforts justify.

Underrewarded

The feeling or situation that arises when an individual perceives that their rewards or compensations do not reflect their contributions or efforts adequately.