12 & 14 Recap 6SavedHelpSavRequired information[The following information applies to the questions displayed below.]In each of the cases below, assume Division X has a product that can be sold either to outside customers or to Division Yof the same company for use in its production process. The managers of the divisions are evaluated based on theirdivisional profits.CaseADivision X:Capacity in unitsNumber of units being sold to outside customersSelling price per unit to outside customersVariable costs per unitFixed costs per unit (based on capacity)Division Y :103,000103,00059 $29 $10 $95,00077,000292$155Number of units needed for productionPurchase price per unit now being paidto an outside supplier18,00018,00053 $30Required:1. Refer to the data in case A above. Assume in this case that $4 per unit in variable selling costs can be avoided on intracompanysales.a. What is the lowest acceptable transfer price from the perspective of the selling division?b. What is the highest acceptable transfer price from the perspective of the buying division?c. What is the range of acceptable transfer prices (if any) between the two divisions? If the managers are free to negotiate and makedecisions on their own, will a transfer probably take place?< Prev1314of 15Next >MacBoo89.

[The following information applies to the questions displayed below.] In each of the cases below, assume Division X has a product that can be sold either to outside customers or to Division Y of the same company for use in its production process. The managers of the divisions are evaluated based on their divisional profits. Case B Division X: Capacity in units Number of units being sold to outside customers Selling price per unit to outside customers Variable costs per unit Fixed costs per unit (based on capacity) 103,000 103,000 59 $ 29 $ 95,000 77,000 29 %24 15 10 Division Y: Number of units needed for production Purchase price per unit now being paid to an outside supplier 18,000 18,000 53 $ 30 Required: 1. Refer to the data in case A above. Assume in this case that $4 per unit in variable selling costs can be avoided on intracompany sales. a. What is the lowest acceptable transfer price from the perspective of the selling division? b. What is the highest acceptable transfer price from the perspective of the buying division? c. What is the range of acceptable transfer prices (if any) between the two divisions? If the managers are free to negotiate and make decisions on their own, will a transfer probably take place?

[The following information applies to the questions displayed below.] In each of the cases below, assume Division X has a product that can be sold either to outside customers or to Division Y of the same company for use in its production process. The managers of the divisions are evaluated based on their divisional profits. Case B Division X: Capacity in units Number of units being sold to outside customers Selling price per unit to outside customers Variable costs per unit Fixed costs per unit (based on capacity) 103,000 103,000 59 $ 29 $ 95,000 77,000 29 %24 15 10 Division Y: Number of units needed for production Purchase price per unit now being paid to an outside supplier 18,000 18,000 53 $ 30 Required: 1. Refer to the data in case A above. Assume in this case that $4 per unit in variable selling costs can be avoided on intracompany sales. a. What is the lowest acceptable transfer price from the perspective of the selling division? b. What is the highest acceptable transfer price from the perspective of the buying division? c. What is the range of acceptable transfer prices (if any) between the two divisions? If the managers are free to negotiate and make decisions on their own, will a transfer probably take place?

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter10: Decentralization: Responsibility Accounting, Performance Evaluation, And Transfer Pricing

Section: Chapter Questions

Problem 5CE

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Exercise 8 (Transfer Pricing Situations) In each of the cases below, assume that Division A has 'a product that can be sold either to outside customers or to Division B of the same company for use in its production process. The managers of the divisions are evaluated based on their divisional profits. Case 1 2 Division X: Capacity in units. Number of units being sold to outside customers.. Selling price per unit to outside customers Variable costs per unit... Fixed costs per unit (based on capacity). 100,000 100,000 P50 P30 100,000 80,000 P35 P20 P 8 Division Y: Number of units needed for production... Purchase price per unit now being paid to an outside supplier.. 20,000 20,000 P47 Р34 Required: 1. Refer to the data in case A above. Assume that P2 per unit in variable selling costs can be avoided on intracompany sales. If the managers are free to negotiate and make decisions on their own, will a transfer take place? If so, within what range will the transfer price fall? Explain. 2.…
Contribution margin by segment The following information is for LaPlanche Industries Inc.: Determine the contribution margin for (A) Product YY and (B) West Region.
n each of the cases below, assume that Division X has a product that can be sold either to outside customers or to Division Y of the same company for use in its production process. The managers of the divisions are evaluated based on their divisional profits: Case A B Division X: Capacity in units 140,000 140,000 Number of units being sold to outside customers 140,000 115,000 Selling price per unit to outside customers $ 54 $ 38 Variable costs per unit $ 34 $ 20 Fixed costs per unit (based on capacity) $ 12 $ 10 Division Y: Number of units needed for production 25,000 25,000 Purchase price per unit now being paid to an outside supplier $ 50 $ 37 Required:1-a. Refer to the data in case A above. Assume that $3 per unit in variable selling costs can be avoided on intracompany sales. Determine the transfer price of the selling division. 1-b. If the managers are free to negotiate and make decisions on their own, will…
[The following information applies to the questions displayed below.) In each of the cases below, assume Division X has a product that can be sold to outside customers or to Division Y of the same company. The managers of the divisions are evaluated based on their divisional profits. Case A B Division X: Capacity in units 106,000 Variable costs per unit Number of units being sold to outside customers Selling price per unit to outside customers 95,000 106,000 72,000 $ 58 $ 26 $ 24 $ 16 Fixed costs per unit (based on capacity) $ 8 $ 4 Division Y: Number of units needed for production 23,000 23,000 Purchase price per unit now being paid to an outside supplier $ 52 $ 32 Exercise 11-13 (Algo) Part 1 Required: 1. Refer to the data in case A above. Assume in this case $2 per unit in variable selling costs can be avoided on intracompany sales. a. What is the lowest acceptable transfer price from the perspective of the selling division? b. What is the highest acceptable transfer price from the…
Chapter: Traditional performance measurement syatem & Transfer Price (Managerial Accounting) Q) 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? (200 words)
EA5. LO 9.4 Assume you are the department B manager for Marley's Manufacturing. Marley's operates under a cost-based transfer structure. Assume you receive the majority of your raw materials from department A, which sells only to department B (they have no outside sales). After calculating the operating income in dollars and operating income in percentage, analyze the following financial information to determine costs that may need further investigation. (Hint: It may be helpful to perform a vertical analysis.)
Exercise 14-36 (Algo) Comparing Business Units Using Economic Value Added (EVA) (LO 14-4) Lauderdale Corporation is organized in three geographical divisions (regions) with managers responsible for revenues, costs, and assets in their respective regions. The firm is highly decentralized and managers are evaluated solely on divisional performance. Corporate overhead (all fixed) is allocated to the regions based on regional gross margin (regional revenue minus regional cost of sales). The following information is from Lauderdale's first year of operations: Revenues Cost of sales Selling, General and Administrative (all fixed) Corporate overhead. Region I $ 1,206,000 453,000 429,000 Region II $ 1,656,000 813,000 639,000 R&D expenditures Current liabilities Region III $ 2,256,000 1,143,000 859,000 Information on the division assets in the three regions of Lauderdale Corporation follows: Region I $ 706,000 Region II Region III 636,000 1,296,500 Lauderdale Corporation has a cost of capital…
Question 11.11.Which of the following equations can be used to compute a firm’s magnitude of operating leverage? Net income/sales Fixed costs/contribution margin Net income/gross margin Contribution margin/net income Question 12.12.Booker Company operates a factory with two departments, X and Y. The rent paid on the manufacturing facility would most likely be allocated to departments X and Y on the basis of: direct labor hours. machine hours. square footage occupied. units sold. Question 13.13.The KnitWitt Corporation manufactures knitted shawls and scarves. The company expects to incur $1,500,000 in overhead costs during 2010. The following budget information is for 2010: ShawlsScarvesTotalNumber of units expected to be produced50,000100,000150,000Direct labor hours250,000800,0001,050,000Machine hours100,00080,000180,000If the company uses direct labor hours as the cost driver, what will be the allocation rate for 2010? $1.43 per direct labor hour $10 per direct labor hour $8.33…
Problems 5.1-5.3 relate to Goods and Services Selection the life cycle, identify a reasonable operations strategy for each: ... 5.1 ing products, and given the position in its life cycle, identify the issues likely to confront the operations manager and his or her possible actions. Product Alpha has annual sales of 1,000 units and a contribution of $2,500; it is in the introductory stage. Prepare a product-by-value analysis for the follow- COMPANY CONTRIBUTION (%: TOTAL ANNUAL CONTRIBUTION PRODUCT CONTRIBUTION (% OF SELLING PRICE) DIVIDED BY TOTAL ANNUAL SALES) POSITION IN LIFE CYCLE Product Bravo has annual sales of 1,500 units and a contribu- PRODUCT tion of $3,0003; it is in the growth stage. Product Charlie has annual sales of 3,500 units and a contribution of $1,750; it is in the decline stage. Smart watch 30 40 Introduction Tablet 30 50 Growth Hand calculator • 5.2 Given the contribution made on each of the 50 10 Decline three products in the following table and their position in
LO 9.4Assume you are the department B manager for Marley’s Manufacturing. Marley’s operates under a cost-based transfer structure. Assume you receive the majority of your raw materials from department A, which sells only to department B (they have no outside sales). After calculating the operating income in dollars and operating income in percentage, analyze the following financial information to determine costs that may need further investigation
Selected sales and operating data for three divisions of different structural engineering firms are given as follows: Division A Division B Division C Sales 12440000$ 35550000$ 25550000$ Average operating assets 3110000$ 7110000$ 5110000$ Net operating income 547360$ 639900$ 740950$ Minimum required rate of return 10.00% 10.50% 14.50$ Required: 1.Compute the return on investment (ROI) for each division using the formula stated in terms of margin and turnover. 2.Compute the residual income for each division. 3. Assume that each division is presented with an investment opportunity that would yield a 11% rate of return. a.If performance is being measured by ROI, which division or divisions will probably accept the opportunity? Reject? b.If performance is being measured by residual income, which division or divisions will probably accept the opportunity? Reject?
Exercise 7: The following table contains data based on a company that makes a single product, and needs to be completed for different levels of production Number of units Total variable variable cost per Total fixed cost Fixed cost per cost unit unit 500 ? 50 ? 20 1500 ? 1800 ? ? 125000 ? ?