The Knuckles and Brackets Division Transfers a Component Product to the Assembly

question 100

Multiple Choice

The Knuckles and Brackets Division transfers a component product to the Assembly Division. Both Divisions are part of Automakers Inc. and are organized as profit centers. Automakers has a general policy of using a 10 percent mark-up for cost-based transfer prices. Knuckles and Brackets also can sell the component product in the open market to other automobile companies for $75. The cost to make the component is $55. By transferring the component internally, the Knuckles and Brackets Division wants the transfer price to be $75 and the manager of the Assembly Division wants the transfer price to be $70. Which of the following are not true?

• A) If the transfer price is $75, then the divisions are using a market-based transfer price.
• B) If the transfer price is $40, then the divisions are using a cost-based transfer price.
• C) If the transfer price is $70, then the divisions are using a negotiated transfer price.
• D) If the transfer price is $70, then both divisions are sharing the profits.
• E) If the transfer price is $55, then the Knuckles and Brackets Division is keeping all the profits.