Define cost-based transfer price. When should cost-based transfer pricing be used? Explain your answer
What will be an ideal response
Cost-based transfer price is a transfer price based on the cost of producing the goods. This price could be the variable cost, the full cost including the variable cost and the fixed cost, or the cost plus a markup. It is used when the division is operating below capacity. Because sales cannot be made to customers outside the company, managers can negotiate a transfer price that is satisfactory to both divisions. There is capacity available to produce goods for other divisions.
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Use the following information to obtain the ratios requested below. Where necessary, carry answers to one decimal place. Dividends per share: $2.16 Market price per share: $48 Net income: $88,000 Average stockholders' equity: $625,000 Earnings per share: $1.56 a. Dividends yield = _____________% b. Return on equity = _____________% c. Price/earnings (P/E) ratio = __________times
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