NUBD Co. has two divisions, Parts Division (PD and Equipment Division (ED). Each division manager has full responsibility on all decisions regarding sales to internal and external customers. ED has always acquired a certain part from PD at negotiated price of P38 per unit. Due to peso devaluation, PD informed ED that it has increased its transfer price to P45. The new market price is P50 per unit. An outside supplier offered to sell ED the same part at P40 per unit and the management of ED is considering accepting the offer. The Parts division provided the following data: Equipment division's parts requirements 5,000 units Parts division's variable cost per unit Parts division's fixed cost per unit P35 P10
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The total advantage (disadvantage) to Equipment Division’s profit if it decided to buy from outside supplier instead of accepting Part Division’s transfer price is
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- The AB division sells goods internally to the CD division of the same company. The quoted external price in industry publications from a supplier near AB is P200 per ton plus transportation. It costs P20 per ton to transport the goods to CD. AB’s actual market cost per ton to buy the direct materials to make the transferred product is P100. Actual per ton direct labor is P50. Other actual costs of storage and handling are P40. The company president selects a P220 transfer price. This is an example of: Cost-based transfer pricing. Cost plus 20% transfer pricing. Market-based transfer pricing. Negotiated transfer pricing.The X and Y Divisions are divisions in the same company. Currently the Y Division buys a part from X Division for P390 per unit. The X Division wants to increase the price of the part it sells to Y Division by P60 to P450. The manager of the Y Division has stated that he cannot pay that much insofar as the division's profit goes below zero. The manager of the Y Division can buy the part from an outside supplier for P448 per unit. The cost data pertaining to the part is supplied by the X Division: Direct materials P136.00 Direct labor 200.00 Variable overhead 40.00 Fixed overhead 38.40 A. If X Division does not produce the parts for the Y Division, it will be able to avoid one-third of the fixed manufacturing overhead costs. The X Division has excess capacity but no alternative uses for the facilities. Y Division will sell the finished product with the part (from X Division) for P1,000 after incurring additional processing costs of P600. What is the…Marky Ltd has two divisions, assembly and electrical. The assembly division transfers partiallycompleted components to the electrical division at a predetermined transfer price. The assemblydivision’s standard variable production cost per unit is $550. This division has spare capacity, and itcould sell all its components to outside buyers at $680 per unit in a perfectly competitive market.Required:a) Determine a transfer price using the general rule.b) How would the transfer price change if the assembly division had no spare capacity? c) What transfer price would you recommend if there was no outside market for the transferredcomponent and the assembly division had spare capacity? d) Explain how negotiation between the supplying and buying units may be used to set transferprices. How does this relate to the general transfer pricing rule?
- Spark Ltd has two divisions, assembly and electrical. The assembly division transfers partially completed components to the electrical division at a predetermined transfer price. The assembly division’s standard variable production cost per unit is $550. This division has spare capacity, and itcould sell all its components to outside buyers at $680 per unit in a perfectly competitive market.Required:a) Determine a transfer price using the general rule.b) How would the transfer price change if the assembly division had no spare capacity?c) What transfer price would you recommend if there was no outside market for the transferred component and the assembly division had spare capacity?d) Explain how negotiation between the supplying and buying units may be used to set transfer prices. How does this relate to the general transfer pricing rule?Leo Consulting enters into a contract with Highgate University to restructure Highgate’s processes for purchasing goods from suppliers. The contract states that Leo will earn a fixed fee of $66,000 and earn an additional $13,000 if Highgate achieves $130,000 of cost savings. Leo estimates a 70% chance that Highgate will achieve $130,000 of cost savings. Assuming that Leo determines the transaction price as the expected value of expected consideration, what transaction price will Leo estimate for this contract? Transaction price for the contract ?LTE Chem Co. is a small-size U.S. chemical company. Two divisions at the company, K1 and K2, are involved in an internal transfer of a chemical ingredient, KXB. Currently, K1 sells 10,000Kgs of KXB to K2 at a price of $ 14.50/kg. The manager at K1 claims that the cost of producing KXB has recently increased, proposing a new price of $ 16.00/Kg, which is the one he can realize by selling the ingredient to the market. K2 has recently approached an external supplier who can supply the 10,000Kgs at a cost of $ 15.10. The cost figures for producing a Kg of KXB at K1 are: Direct Materials. Direct Labor.. Variable Overhead Fixed Overhead $5.15 4.35 0.50 1.60 Required: a. Based on the figures above, what is the current acceptable range of prices for the 10,000Kgs? What would be the net loss or saving for the company as a whole if, on the other hand, K1 expects to forgo 5,000Kgs that could be sold at $ 16.00/Kg to external customers? b. Now assume that, to push external sales of KXB by K1,…
- LTE Chem Co. is a small-size U.S. chemical company. Two divisions at the company, K1 and K2, are involved in an internal transfer of a chemical ingredient, KXB. Currently, K1 sells 10,000Kgs of KXB to K2 at a price of $ 14.50/kg. The manager at K1 claims that the cost of producing KXB has recently increased, proposing a new price of $ 16.00/Kg, which is the one he can realize by selling the ingredient to the market. K2 has recently approached an external supplier who can supply the 10,000Kgs at a cost of $ 15.10. The cost figures for producing a Kg of KXB at K1 are: Direct Materials.. Direct Labor.. Variable Overhead Fixed Overhead $5.15 4.35 0.50 1.60 Required: a. Based on the figures above, what is the current acceptable range of prices for the 10,000Kgs? What would be the net loss or saving for the company as a whole if, on the other hand, K1 expects to forgo 5,000Kgs that could be sold at $ 16.00/Kg to external customers? b. Now assume that, to push external sales of KXB by K1,…Sunland Co. is a full-service manufacturer of surveillance equipment. Customers can purchase any combination of equipment, installation services, and training as part of Sunland's security services. Thus, each of these performance obligations are separate with individual standalone selling prices. Sandhill Inc. purchased cameras, installation, and training at a total price of $84,000. Estimated standalone selling prices of the equipment, installation, and training are $94,500, $7,350, and $3,150, respectively. How should the transaction price be allocated to the equipment, installation, and training? Equipment $ Installation $ Training $Leo Consulting enters into a contract with Highgate University to restructure Highgate's processes for purchasing goods from suppliers. The contract states that Leo will earn a fixed fee of $22,000 and earn an additional $4,000 if Highgate achieves $40,000 of cost savings. Leo estimates a 60% chance that Highgate will achieve $40,000 of cost savings. Assuming that Leo determines the transaction price as the expected value of expected consideration, what transaction price will Leo estimate for this contract?