1.When an industry has excess capacity, market prices may drop well below their historical average. If this drop is temporary, it is called
- distress prices.
- dropped prices.
- low-average prices.
- substitute prices.
2. The range over which two divisions will negotiate a transfer price is
- between the supplying division's variable cost and the market price of the product.
- between the supplying division's variable cost and its full cost of the product.
- anywhere above the supplying division's full cost of the product.
- between the supplying division's full cost and 180% above its full cost.
3. Division A sells soybean paste internally to Division B, which in turn, produces soybean burgers that sell for $5 per pound. Division A incurs costs of $0.75 per pound while Division B incurs additional costs of $2.50 per pound. Which of the following formulas correctly reflects the company's operating income per pound?
- $5.00 - ($1.25 + $2.50) = $1.25
- $5.00 - ($0.75 + $2.50) = $1.75
- $5.00 - ($0.75 + $3.75) = $0.50
- $5.00 - ($0.25 + $1.25 + $3.50) = 0