SDF makes cars. Demand for one of SDF's most popular models has declined because of a long-running television program. SDF's car is driven by a villainous character in the program and that has created such a negative association that sales have declined so significantly that SDF is planning to discontinue production.
Which of the following statements is correct? Select ALL that apply.

• A.SDF's sales department should have prevented the television production company from buying the car.
• B.The use of a product in a television program can create upside risks.
• C.SDF's board should accept full responsibility for permitting this to happen.
• D.SDF should have considered the possibility that sales of this car could be affected by public perception, even though the car's practical attributes are unchanged.
• E.Business risks can arise from unexpected events.

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A company is comprised of two divisions, each of which manufactures a single product. Division A manufactures a product which can be sold in a perfect external market or transferred as an intermediate product to division B. Division B finishes the intermediate product and sells this in a perfect external market.
Due to company policy, internal transfers are recorded at the external market price. At this transfer price both divisions make a profit from their activities.
Which of the following will NOT be achieved by the company's transfer pricing policy?

• A.Divisional autonomy
• B.A fair basis for divisional performance evaluation
• C.Goal congruence
• D.Motivation of divisional managers to produce and sell as much as possible

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Company S has two divisions, X and Y. Division X transfers 50,000 component units to Division Y each quarter. The market price of the component is $20. Division X's variable cost is $10 per unit and its fixed cost is $150,000 each quarter.
What price would be credited to Division X for each component that it transfers to Division Y under:
two-part tariff pricing (where the two divisions have agreed that the fixed fee will be $100,000); and dual pricing (based on market price and marginal cost).

• A.Two-part tariff pricing = $13
  Dual pricing = $22
• B.Two-part tariff pricing = $10
  Dual pricing = $20
• C.Two-part tariff pricing = $12
  Dual pricing = $18
• D.Two-part tariff pricing = $10
  Dual pricing = $22

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A risk averse decision maker will:

• A.accept a risk if it is accompanied by a satisfactory potential return.
• B.avoid all risks.
• C.always select the course of action that has the lowest risk.
• D.accept a risk if the expected value of the potential outcomes is positive.

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SkillWeave Industries are focused on managing the risk of selling their cars to the region due to economic turmoil, and have now begun using funds from sales in the region to fund supplier purchases from that region to reduce the risk from the volatile currency. However, SkillWeave want to go a step further and make the risk even less sizeable.
Which of the following is a method by which SkillWeave can operate in the market and transfer the risk of exchange rate exposure to another party?

• A.Arrange a forward foreign exchange rate contract agreeing to buy a given amount of the foreign currency in 3 months time for a fixed exchange rate based on current rates
• B.Temporarily stop operating in that target market
• C.Put a sale on all vehicles stationed in the region to clear stock quickly
• D.Invoice international sales in domestic currency

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