Vaughn treats its divisions as profit centers and allows division managers to choose whether to sell or tobuy from internal division. Corporate policy requires that all interdivisional sales and purchases betransferred at variable cost.Gamma Division of Vaughn Corp. produces electric motors. This product is currently sold to outsidecustomers but is needed by Omega, another division of Vaughn. Gamma Division's estimated sales andstandard cost data for the year ended December 31, based on practical capacity of 60,000 units are asfollows:P 7,200,0003, 300,000P 3,900,0001,075,000P 2,825,000SalesLess: Variables CostContribution MarginFixed CostOperating IncomeGamma has an opportunity to sell 12,000 units to Omega. Omega can purchase the units it needs fromoutside supplier for P92 each.Required:Assuming that Gamma can normally sell 57,000 units to outsider customers1. compute for the minimum transfer price acceptable to Gamma.2. Compute for the maximum transfer price.

Transfer Price means the price at which the one division of the company sells the goods or provides…

Answered: Vaughn treats its divisions as profit…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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1. Ajax Division of Carlyle Corporation produces electric motors, 20% of which are sold to Bradley Division of Carlyle and the remainer to outside customers. Carlyle treats ist divisions as profit centers and allows division managers to choose their sources of sales and supply. Corporate policy requires that all interdivisional sales and purchases be recorded at variable cost as a transfer price. Ajax Division's estimated sales and standard cost data for the year ending December 31, 2013 based on the full capacity of 100,000 units, are as follows: Sales Variable costs Fixed costs Gross margin Unit sales Bradley $900,000 (900,000) (300,000) $(300,000) 20,000 outsiders $8,000,000 (3,600,000) (1,200,000) $3,200,000 80,000 Ajax has an opportunity to sell the above 20,000 units to an outside customer at a price of $75 per unit during 2013 on a continuing basis. Bradley can purchase its requirements from an outsider supplier at a price of $85 per unit. Assuming that Carlyle desires to…
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Durham Parts (DP) makes a variety of products. It is organized in two divisions, Eastern and Western. The managers for each division are paid, in part, based on the financial performance of their divisions. The Western Division normally sells to outside customers but. on occasion, also sells to the Eastern Division. When it does, corporate policy states that the price must be cost plus 25 percent to ensure a "fair" return to the selling division. Western received an order from Eastern for 1,200 units. Western's planned output for the year had been 4,800 units before Eastern's order. Western's capacity is 6,000 units per year. The costs for producing those 4,800 units follow Materials Direct labor Other costs varying with output Fixed costs (do not vary with output) Totals Total $ 240,000 115,200 76,800 288,000 $ 720,000 Per Unit $ 50 24 16 60 $ 150 Required: a. If you are the manager of the Western Division, what unit cost would you ask the Eastern Division to pay? b. If you are the…
Atascadero Industries operates a Manufacturing Division and a Marketing Division. Both divisions are evaluated as profit centers. Marketing buys products from Manufacturing and packages them for sale. Manufacturing sells many components to third parties in addition to Marketing. Selected data from the two operations follow. Manufacturing Marketing 1,020,000 %24 Capacity (units) sales price variable costs Fixed costs 502,000 1,500 4,650 $4 580 1,720 $10,200, 000 $7,220, 000 a. For Manufacturing, this is the price to third partles. For Marketing, this does not include the transfer price paid to Manufacturing. Suppose Manufacturing is located in Country X with a tax rate of 70 percent and Marketing in Country Y with a tax rate of 30 percent. All other facts remain the same, Requlred: a. Current production levels in Manufacturing are 520,000 units. Marketing requests an additional 120.000 units to produce a speclal order. What transfer price would youu recommend? b. Suppose Manufacturing…
Durham Parts (DP) makes a variety of products. It is organized in two divisions, Eastern and Western. The managers for each division are paid, in part, based on the financial performance of their divisions. The Western Division normally sells to outside customers but, on occasion, also sells to the Eastern Division. When It does, corporate policy states that the price must be cost plus 25 percent to ensure a "fair" return to the selling division. Western received an order from Eastern for 1.200 units. Western's planned output for the year had been 4,800 units before Eastern's order. Western's capacity is 6.000 units per year. The costs for producing those 4,800 units follow. Materials Direct labor Other costs varying with output Fixed costs (do not vary with output) Totals Total $364,800 177,600 139,200 288,000 $ 969,600 Required: a. If you are the manager of the Western Division, what unit cost would you ask the Eastern Division to pay? b. If you are the manager of the Eastern…
The Mansfield Company manufactures and sells two lines of fishing rods. During the most recent accounting period, the Pro line and the Novice line sold 16,600 and 3,600 units, respectively. The company's most recent financial statements are shown below: Sales Less cost of goods sold: Unit-level production cost Depreciation, production equipment Gross margin Less operating expenses: Unit-level selling and administrative costs Corporate-level facility expenses (fixed) Net income (loss) Based on this information, the company should: Multiple Choice It is impossible to determine with the given information. Pro $996,000 664,000 149,000 $183,000 Keep the Novice line because it contributes $99,000 to total profitability. Eliminate the Novice line because it is operating at a loss. 44,000 39,840 $99,160 Keep the Novice line because it contributes $72,000 to total profitability. Novice $432,000 243,000 90,000 $99,000 117,000 39,840 $(57,840)
Carol Components operates a Production Division and a Packaging Division. Both divisions are evaluated as profit centers. Packaging buys components from Production and assembles them for sale. Production sells many components to third parties in addition to Packaging. Selected data from the two operations follow: Capacity (units) Sales price Variable costsb Fixed costs a For Production, this is the price to third parties. b For Packaging, this does not include the transfer price paid to Production. Suppose Production is located in Country A with a tax rate of 30 percent and Distribution in Country B with a tax rate of 10 percent. All other facts remain the same. a. Optimal transfer price b. Transfer price c Transfer price Required: a. Current output in Production is 25,300 units. Packaging requests an additional 5,960 units to produce a special order. What transfer price would you recommend? to search b. Suppose Production is operating at full capacity. What transfer price would you…
Consolidated Industries is a diversified manufacturer with business units organized as divisions, including the Reigis Steel Division. Consolidated monitors its divisions on the basis of both unit contribution and return on investment (ROI), with investment defined as average operating assets employed. All investments in operating assets are expected to earn a minimum return of 12% before income taxes. Reigis's cost of goods sold is considered to be entirely variable; however, its administrative expenses do not depend on volume. Selling expenses are a mixed cost with one-third attributed to sales volume. The 2022 operating statement for Reigis follows. The division's operating assets employed were $348,750,000 at November 30, 2022, unchanged from the year before. REIGIS STEEL DIVISION Operating Statement For the Year Ended November 30, 2022 (000s omitted) Sales revenue $ 196,000 Less expenses: $ 101,950 Cost of goods sold Administrative expenses 20,000 Selling expenses 139,050 $ 56,950…
Consolidated Industries is a diversified manufacturer with business units organized as divisions, including the Reigis Steel Division. Consolidated monitors its divisions on the basis of both unit contribution and return on investment (ROI), with investment defined as average operating assets employed. All investments in operating assets are expected to earn a minimum return of 11% before income taxes. Reigis’s cost of goods sold is considered to be entirely variable; however, its administrative expenses do not depend on volume. Selling expenses are a mixed cost with one-third attributed to sales volume. The 2022 operating statement for Reigis follows. The division’s operating assets employed were $181,250,000 at November 30, 2022, unchanged from the year before. REIGIS STEEL DIVISION Operating Statement For the Year Ended November 30, 2022 (000s omitted) Sales revenue $ 96,000 Less expenses: Cost of goods sold $ 50,250 Administrative expenses 10,000…
XYZ prepared a segmented income statement that included the following data for its X marketing segment: Net sales $950,000 Fixed costs controllable by the X marketing segment manager $150,000 Fixed X marketing costs controllable by corporate management $250,000 Fixed manufacturing costs allocated to the X marketing segment $110,000 Variable manufacturing costs $200,000 Variable selling costs $100,000 Variable administrative costs $95,000 The best measure of the economic performance of the X marketing segment’s manager is:
Toxaway Company is a merchandiser that segments its business into two divisions—Commercial and Residential. The company’s accounting intern was asked to prepare segmented income statements that the company’s divisional managers could use to calculate their break-even points and make decisions. She took the prior month’s companywide income statement and prepared the absorption format segmented income statement shown below: TotalCompany Commercial Residential Sales $ 975,000 $ 325,000 $ 650,000 Cost of goods sold 663,000 182,000 481,000 Gross margin 312,000 143,000 169,000 Selling and administrative expenses 300,000 134,000 166,000 Net operating income $ 12,000 $ 9,000 $ 3,000 In preparing these statements, the intern determined that Toxaway’s only variable selling and administrative expense is a 10% sales commission on all sales. The company’s total fixed expenses include $64,500 of common fixed expenses that would continue to be incurred even if the Commercial…
Garcon Inc. manufactures electronic products, with two operating divisions, Consumer and Commercial. Condensed divisional income statements, which involve no intracompany transfers and which include a breakdown of expenses into variable and fixed components, are as follows: (refer to pic) 2. If the Commercial Division purchases 2,880 units from the Consumer Division, rather than externally, at a negotiated transfer price of $115 per unit, how much would the income from operations of each division and the total company income from operations increase? 3. Prepare condensed divisional income statements for Garcon Inc. based on the data in Requirement 2. 4. If a transfer price of $126 per unit is negotiated, how much would the income from operations of each division and the total company income from operations increase?

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