Question

A negotiated trans fer price: (a) Could never be used in an agreement based on standard costs and a profit margin. Would not be based on a product market price that has been reduced through bargaining by division managers. Is one that is bargained for between the managers of the buying and selling divisions. Is usually developed by lawyers following defined legal procedures. 5. (b) (c) (d) Assume Vandalia Co. produces and sells the following four products at the given dollar amounts per unit. Production is limited by machine hours available. 6. VANDALIA CO. INFORMATION FOR SELLING PRICE, COSTS, AND LIMITED RESOURCE FOR PRODUCTION Products Per Unit Amounts For В С D Selling Price 21 $ 30$ $ 24 S 26 Variable Manufacturing Costs 15 18 16 15 Variable Selling Costs 2 4 Fixed Manufacturing Costs Machine Hours Required 2 2 1 4 151 17

Answer 1

5. Righ options is B. A negotiated transfer price would not necessarily be based on the product market price that has been reduced through bargaining by division managers. It means it works even if there is no market for the product.

6. This question is based on marginal costing limiting factor concept.

Particulars	A	B	C	D
Selling Price	21	30	24	26
(-)Variable manufacturing cost	15	18	16	15
(-)Variable selling cost	2	3	4	5
Contribution/Unit	4	9	4	6
machine hour/unit	2	2	1	4
contribution per machine hour(contribution per unit/machine hours)	2	4.5	4	1.5
Ranking on the basis of contribution per machine hour	III	I	II	IV

Hence Right answer is A. First B should be produced as its contribution per machine hour is high,then C,then A and in last D should be produced as its contribution is less and machine hour is in limit.

7.Right answer is D.
Differential cost is the difference between the cost of two alternative course of action or in change in level of outputs.
The cost occurs when a business faces several options, and a choice must be made by picking one option and dropping the other.
Further, Differential cost concept is used in marginal costing.

8.Right answer is C.
Primary difference between fixed and flexible budget is that a fixed budget is a budget for single level of production while the flexible budget is a budget for varied levels of production.

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