Porter Division is part of the Hurry Group. It produces a machine spare part at a cost of $20 which is then transferred to Hermy Division within the group which has additional costs of $10. Hermy Division sells externally at $32. The spare part is also produced in other divisions within the Hurry Group and a limited quantity can be purchased from outside the group. Hurry Group has a policy of transfer price at cost plus 20%. REQUIRED: a) Determine profit of each division and overall profit of Hurry Group.

A company manufactures products X and Y using a joint process. The joint processing costs are P10,000. Products X and Y can be sold at split-off for P12,000 and P8,000 respectively. After split-off, product X is processed further at a cost of P5,000 and sold for P21,000 whereas product Y is sold without further processing. If the company uses the net realizable value method for allocating joint costs, the joint cost allocated to X is

Assume a company has two divisions, Division C and Division D. Division C has provided the following information regarding the one product that it manufactures and sells on the outside market: Selling price per unit (on the outside market) $ 60 Variable cost per unit $ 44 Fixed costs per unit (based on capacity) $ 8 Capacity in units 20,000 Division D could use Division C’s product as a component part in the manufacture of 4,000 units of its own newly-designed product. Division D has received a quote of $58 from an outside supplier for a component part that is comparable to the one that Division C makes. If the company’s divisional managers are evaluated based on their division’s profits and Division C is currently selling 15,000 units on the outside market, what is Division C’s lowest acceptable transfer price if it were to sell 4,000 units to Division D?

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 pricea Variable costs b Fixed costs Production 50,600 $ 252 $ 108 $ 30,000,000 a For Production, this is the price to third parties. b For Packaging, this does not include the transfer price paid to Production. Packaging 25,300 $ 792 $ 300 $ 18,000,000 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? b.…

Determining Market-Based and Negotiated Transfer Prices Carreker, Inc., has a number of divisions, including the Alamosa Division, producer of surgical blades, and the Tavaris Division, a manufacturer of medical instruments. Alamosa Division produces a 2.5 cm steel blade that can be used by Tavaris Division in the production of scalpels. The market price of the blade is $25. Cost information for the blade is: Variable product cost $ 9.40 Fixed cost 5.00    Total product cost $14.40 Tavaris needs 18,000 units of the 2.5 cm blade per year. Alamosa Division is at full capacity (84,000 units of the blade). Required: 1. If Carreker, Inc., has a transfer pricing policy that requires transfer at market price, what would the transfer price be?$ fill in the blank 1per unit Do you suppose that Alamosa and Tavaris divisions would choose to transfer at that price?   2. Now suppose that Carreker, Inc., allows negotiated transfer pricing and that Alamosa Division can avoid $1.50 of selling…

Stahl Inc. produces three separate products from a common process costing $100,800. Each of the products can be sold at the split-off point or can be processed further and then sold for a higher price. Shown below are cost and selling price data for a recent period.     Sales Valueat Split-OffPoint   Cost toProcessFurther   Sales Valueafter FurtherProcessing   Product 10     $60,400       $100,600       $190,000     Product 12     15,600       30,100       35,400     Product 14     55,500       150,800       214,500         Determine total net income if all products are sold at the split-off point. Net income   $      eTextbook and Media                     Determine total net income if all products are sold after further processing. Net income   $      eTextbook and Media                     Calculate incremental profit/(loss) and determine which products should be…

Assume a company has two divisions, Division A and Division B. Division A has provided the following information regarding the one product that it manufactures and sells on the outside market: Selling price per unit (on the outside market) $ 60 Variable cost per unit $ 43 Fixed costs per unit (based on capacity) $ 8 Capacity in units 20,000 Division B could use Division A’s product as a component part in the manufacture of 4,000 units of its own newly-designed product. Division B has received a quote of $60 from an outside supplier for a component part that is comparable to the one that Division A makes. Also assume that the company’s divisional managers are evaluated based on their division’s profits and that Division A is currently selling 17,000 units on the outside market. If the managers of the two divisions do not agree on a transfer price and Division B purchases 4,000 component parts from an outside supplier, what would be the effect on the company’s profits?

Pharoah International Corporation has two divisions, beta and gamma. Beta produces an electronic component that sells for $75 per unit, with the following costs based on its capacity of 213,000 units: Direct materials $22 Direct labour 17 Variable overhead 4 Fixed overhead 12 Beta is operating at 74% of normal capacity and gamma is purchasing 14,500 units of the same component from an outside supplier for $69 per unit. (a) Calculate the benefit, if any, to beta in selling to gamma 14,500 units at the outside supplier's price. Benefit $ per unit

s

Porter Division is part of the Hurry Group. It produces a machine spare part at a cost of $20 which is then transferred to Hermy Division within the group which has additional costs of $10. Hermy Division sells externally at $32. The spare part is also produced in other divisions within the Hurry Group and a limited quantity can be purchased from outside the group. Hurry Group has a policy of transfer price at cost plus 20%. Question: Analyse the result above and problem arise on the current transfer pricing method used by the company.