Part 1 Cost Measurement Concepts_Qs 10 Sep 2022

Physical Units Method, Relative Sales Value Method Farleigh Petroleum, Inc., is a small company that acquires high-grade crude oil from low-volume production wells owned by individuals and small partnerships. The crude oil is processed in a single refinery into Two Oil, Six Oil, and impure distillates. Farleigh Petroleum does not have the technology or capacity to process these products further and sells most of its output each month to major refineries. There were no beginning finished goods or work-in-process inventories on April 1. The production costs and output of Farleigh Petroleum for April are as follows: 1 Crude oil placed into production Direct labor and related costs Manufacturing overhead Data on barrels produced and selling price: $6,600,000 1,400,000 3,000,000 Two Oil, 300,000 barrels produced; sales price, $45 per barrel. Six Oil, 170,000 barrels produced; sales price, $25 per barrel Distillates, 80,000 barrels produced; sales price, $14 per barrel Required: 1. Calculate…

CH. 4 Question 5 A company is considering outsourcing production of one of its products.  The company has received a bid from another company to produce 10,000 units per year for $16 each.  The following information: Direct Materials $9 Direct Labor $4 Variable Manfuacturing OH $2 Fixed Manufacturing OH $3 Total Cost per unit $18 1) Compute the difference in cost between making and buying the product 2) Should the company buy the product from the other company or continue to make it themselves?

Question 9.1                                                                     Deep Sea Drilling Corp. has two divisions, Refining and Production. The company's primary product is Clean Oil. Each division's costs are provided below: Refining: Variable costs per litre of oil $30   Fixed costs per litre of oil $24       Production: Variable costs per litre of oil $6   Fixed costs per litre of oil $4 The Production Division is able to sell the oil to other areas for $24 per litre. The Refining Division has been operating at a capacity of 80,000 litres a day, using oil from the Production Division and oil purchased from other suppliers. The Refining Division usually purchases 50,000 litres of oil, on average, from the Production Division and 30,000 litres, on average, from other suppliers at $40/litre. Required What is the transfer price per litre assuming the method used is 175% of variable costs?   What is the transfer price per litre from…

Question 3 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 it could sell all its components to outside buyers at $680 per unit in a perfectly competitive market.   Required: Determine a transfer price using the general rule. How would the transfer price change if the assembly division had no spare capacity? What transfer price would you recommend if there was no outside market for the transferred component and the assembly division had spare capacity? 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?

Question 10.4 Big Machines Corp. has two divisions. Division Y manufactures components that can be sold in the external market place or transferred to Division Z for further processing. The following data relate to Division Y's component product.       Variable manufacturing costs/unit $925 Fixed costs/unit at capacity $275 Selling price/unit $1,800 The capacity of the plant is 2,500 units per year. Division Z has offered to purchase 350 units from Division Y at a price of $1,600/unit, which is the market price of the component. The manager of Division Y has refused this offer stating that it would only return a rate of 25.00%, when the divisional target return on sales is 28.00%. The Division Y manager also states that additional fixed costs of $195,000 would be required to produce the 350 units. The corporate required rate of return is 18% of assets and the existing asset base in Division Y is $2,500,000. Required: How many units must Division Y sell in order…

Question 2 In Bradford Ltd, there are two divisions: Transportation and Refining Divisions. The below is relevant information: 1. Transportation Division:                               The purchase price of crude oil from fields under a long-term contract is £13 per barrel, and Transportation Division purchases crude oil in the North Sea and also transports the crude oil to London. Other costs:                                                       Variable costs per barrel of crude oil         £2       Fixed costs per barrel of crude oil​       £3   Total​                                  £5                                    ​​​                                     The pipeline from the North Sea to London can carry 35,000 barrels of crude oil per day. 2. Refining Division:                                       The external purchase price of crude oil from outside suppliers is £23 per barrel. The Refining Division is buying 20,000 barrels a day from the…

Question 4 Ayayai Industrial Products Inc. is a diversified industrial-cleaner processing company. The company’s Dargan plant produces two products: a table cleaner and a floor cleaner from a common set of chemical inputs (CDG). Each week, 855,000 ounces of chemical input are processed at a cost of $207,000 into 570,000 ounces of floor cleaner and 285,000 ounces of table cleaner. The floor cleaner has no market value until it is converted into a polish with the trade name FloorShine. The additional processing costs for this conversion amount to $240,000.FloorShine sells at $18 per 30-ounce bottle. The table cleaner can be sold for $17 per 25-ounce bottle. However, the table cleaner can be converted into two other products by adding 285,000 ounces of another compound (TCP) to the 285,000 ounces of table cleaner. This joint process will yield 285,000 ounces each of table stain remover (TSR) and table polish (TP). The additional processing costs for this process amount to $100,000. Both…

H 3    Assume that the external supplier reduced the selling price to $700 per unit of XT86 to the Products Division. The Components Division reduced the price for external customers to $800, but sales to external customers could be increased only to 45,000 units of XT86. Products Division wants to acquire as many as 20,000 units if the transfer price is acceptable. For simplicity assume that there is no external market for the final 5,000 units of Components Division’s capacity. a) Using the general guideline, what is (are) the minimum transfer price (s) that should lead to the correct economic decision? Ignore performance evaluation considerations. b) What is the range between the minimum and maximum transfer price the managers of component and products divisions can negotiate the final TP?

Making outsourcing decisions Cool Systems manufactures an optical switch that it uses in its final product. The switch has the following manufacturing costs per unit: Another company has offered to sell Cool Systems the switch for $15.00 per unit. If Cool Systems buys the switch from the outside supplier, the idle manufacturing facilities cannot be used for any other purpose, yet none of the fixed costs are avoidable.</p><p>Prepare an outsourcing analysis to determine whether Cool Systems should make or buy the switch.

ex4. Differential Analysis for Further Processing The management of International Aluminum Co. is considering whether to process aluminum ingot further into rolled aluminum. Rolled aluminum can be sold for $2,200 per ton, and ingot can be sold without further processing for $1,100 per ton. Ingot is produced in batches of 80 tons by smelting 500 tons of bauxite, which costs $105 per ton of bauxite. Rolled aluminum will require additional processing costs of $620 per ton of ingot, and 1.25 tons of ingot will produce 1 ton of rolled aluminum (due to trim losses). Required: 1.  Prepare a differential analysis as of February 5 to determine whether to sell aluminum ingot (Alternative 1) or process further into rolled aluminum (Alternative 2). Differential Analysis Sell Ingot (Alt. 1) or Process Further into Rolled Aluminum (Alt. 2) February 5   SellIngot(Alternative 1) ProcessFurther intoRolledAluminum(Alternative 2) DifferentialEffecton Income(Alternative 2) Revenues,…

Question 2 Capstone Company has two divisions. The Bottle Division produces products that have variable costs of $3 per unit. It has annual production of 200,000 units. 160,000 units of the products are sold to outsiders at $5 per unit and 40,000 units to the Mixing Division. The fixed costs of the Bottle Division are $125,000 per year. There was no beginning or ending inventories during the year. Mixing sells its finished products to outside customers for $11.50 per unit. Mixing has variable costs of $2.50 per unit in addition to the costs from the Bottle Division. The annual fixed costs of Mixing were $85,000. There was no beginning or ending inventories during the year. Required: b) Compute the transfer price per unit from the Bottle Division to the Mixing Division under the following basis: (i) Market-based transfer price. (ii) Cost-based transfer price at 125% of variable costs (iii) Cost-based transfer price at 120% of full costs c) Compute the operating income of each division…

Question 2 Capstone Company has two divisions. The Bottle Division produces products that have variable costs of $3 per unit. It has annual production of 200,000 units. 160,000 units of the products are sold to outsiders at $5 per unit and 40,000 units to the Mixing Division. The fixed costs of the Bottle Division are $125,000 per year. There was no beginning or ending inventories during the year. Mixing sells its finished products to outside customers for $11.50 per unit. Mixing has variable costs of $2.50 per unit in addition to the costs from the Bottle Division. The annual fixed costs of Mixing were $85,000. There was no beginning or ending inventories during the year. Required: a) How much should be the minimum transfer price: (i) if market for the products from Bottle Division is perfectly competitive? (ii) if intermediate market exists that is not perfectly competitive, and the Bottle Division has no unused capacity?

54 A company that currently produces final product A is considering stopping processing earlier in the production process and selling the intermediate product on the market. The final product sells for $100 per unit, whereas the firm believes it can sell the partially processed intermediate product for $75 per unit. The firm sells 1,000 units per quarter and faces a total finished processing cost of $10,000 per quarter after split-off. Should the firm sell the intermediate good or the final good? O The intermediate good, because final good sales decrease profits by $15,000 O The final good, because final good sales increase profits by $25,000 The intermediate good, because final good sales decrease profits by $25,000 O The final good, because final good sales increase profits by $15,000

S aw The Stake Division of the Outdoor Lumination Company produces stakes which can be sold to outside customers or transferred to the Solar Light Division of the Outdoor Lumination Company. Last year, the Solar Light Division bought 58,000 stakes from the Stake Division. The following data are available for last year's activities in the Stake Division: Capacity in units Quantity sold to outside customers Selling price per stake to outside customers Total variable costs per stake Fixed operating costs e here to search Multiple Choice In order to sell 58,000 stakes to the Solar Light Division, the Stake Division had to give up sales of 39,875 stakes to outside customers. That is, the Stake Division could sell 391,875 stakes each year to outside customers (rather than only 352,000 stakes as shown above) if it were not making sales to the Solar Light Division. What is the lowest acceptable transfer price from the viewpoint of the selling division? A $2.40 O Ai 410,000 stakes 352,000…

Transfer Price with an Outside Market Hrubec Products. Inc., operates a Pulp Division that manufactures wood pulp for use in the production of various paper goods. Revenue and costs associated with a ton of pulp follow: Hrubec Products has just acquired a small company that manufactures paper cartons. This company will be treated as a division of Hrubec with full profit responsibility. The newly formed Carton Division is currently purchasing 5,000 tons of pulp per year from a supplier at a cost of $70 per ton, less a 10% purchase discount. Hrubec’s president is anxious for the Carton Division to begin purchasing its pulp from the Pulp Division if an acceptable transfer price can be worked out. Required: For (1) and (2) below, assume the Pulp Division can sell all of its pulp to outside customers for $70 per ton. 1. What is the lowest acceptable transfer price from the perspective of the Pulp Division? What is the highest acceptable transfer price from the perspective of the Carton…

Homwork Question 6 MSI is considering outsourcing the production of the handheld control module used with some of its products. The company has received a bid from Monte Legend Co. (MLC) to produce 10,000 units of the module per year for $16 each. The following information pertains to MSI’s production of the control modules: Direct materials $9Direct labor $4Variable manufacturing overhead $2Fixed manufacturing overhead $3Total cost per unit $18 MSI has determined that it could eliminate all variable costs if the control modules were produced externally, but none of the fixed overhead is avoidable. At this time, MSI has no specific use in mind for the space that is currently dedicated to the control module production. 1. Compute the difference in cost between making and buying the control module.