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:

Define

means to clearly describe the nature, scope, or meaning of something.

Materiality

Materiality refers to the significance of information or facts that could influence decisions made by users, such as investors or shareholders; it is a key concept in accounting and auditing.

Misrepresentation

A false statement of fact made by one party to another party, which induces the latter party into a contract.

Concept

An abstract idea or a general notion that represents the fundamental characteristics of what it describes.