Chapter 5

Question 1

1. What is mark up costing?
2. What is marginal costing?

Answer 1

1. Mark ups are taken on cost, with cost at 100%
2. Margins are taken on selling price with the selling price at 100%

Question 2

Does the following terminology describe mark up or marginal costing?

1. X% return on sales
2. Profit margin of X%

Answer 2

1. Marginal costing
2. Marginal costing

Question 3

1. How is full cost plus calculatd with Mark up?
2. What are the advantages and disadvantages of it?

Answer 3

1) unit sales price = total production costs + mark up

or

Unit sales price - total production costs + total other costs plus mark up

Question 4

Answer 4

Question 5

1. How is marginal costing calculated with mark up?
2. Give the adavnatges and disadvantages of using it

Answer 5

1) Unit sales price = Total variable production cost + mark up

or

Unit sales price = Total variable cost + mark up

Question 6

Answer 6

a) Make up numbers for question
b) solve using those numbers

Question 7

What is transfer pricing?

Answer 7

Question 8

What are the aims of transfer pricing?

Answer 8

Question 9

What is the optimal transfer price vs the external selling price when….

1. An internal devision is selling to an external competative market with no spare capacity
2. An internal devision is only selling to other internal devisions.
3. An internal devision is selling to an external competative market with spare capacity

Answer 9

Question 10

Answer 10

Question 11

Answer 11

Question 12

Answer 12

Division Delta profit: Decrease

Overal Company profit: Decrease _{(fixed cost of delta exist irrespective of whether products are purchased)}