a) What is a “transfer price?”

Question #1
a) What is a “transfer price?”
b) List and describe 3 main reasons for using transfer prices.

Question #2
Consider the following information about a potential project:
Investment required
Expected annual project revenue
Expected annual project expenses
Required rate of return
Current division return on investment

$3,000,000
$6,000,000
$5,550,000
11%
18%

a) Calculate the project’s return on investment.
b) Based solely on ROI, is this project in the firm’s best interests? Why or why not?
c) Is this project in the division manager’s best interests? Why or why not?
d) Perform DuPont Analysis on this project.
e) What is the project’s residual income?

Question #3
List and describe five traits that can differentiate a customer that is relatively inexpensive to service from a customer that is relatively expensive to service.

Question #4
List and describe five actions a firm can take if a customer appears to be unprofitable.

Question #5
Consider the following quality cost report:

Prevention costs
Appraisal costs
Internal failure costs
External failure costs
Total quality costs
Total revenues

Q1
$530
$430
$620
$875
$2,455
$55,000

Q2
$825
$475
$550
$725
$2,575
$56,000

Q3
$775
$420
$450
$500
$2,145
$65,000

Q4
$650
$360
$350
$350
$1,710
$66,000

Do you believe this firm’s quality initiatives have been successful? Be sure to justify your opinion with specific information.