COST ACCOUNTING
TRANSFER PRICING
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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ABC Company, a merchandising company, is considering a P 1, 000, 000 upgrade to its retail and warehousing facilities that will allow the company to handle more products and attract ore customers. ABC anticipates that sales will increase by P 500, 000 and operating income will increase by P 200, 000 per year. If ABC Company has a minimum required return on investment of 15%, what would be the residual income resulting from upgrade?
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P 50, 000
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P 500, 000
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P 200, 000
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P 800, 000
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Explanation:
Detailed explanation-1: -The primary expenses of a merchandising company constitute the money spent on the acquisition of raw materials for making the merchandise to be sold. For a service enterprise, a major part of the expenses is formed by the salaries paid to the workers who actually provide the services to the customers.
Detailed explanation-2: -The income in a merchandising company is measured by comparing the sale value of the merchandising inventory with the cost of goods sold and operating expenses.
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