Determine transfer price at a manufacturer under various scenarios (Learning Objective 4)
Assume the Small Components Division of Lang Manufacturing produces a video card used in the assembly of a variety of electronic products. The division’s
Cost per unit | |
Direct materials | $ 14.00 |
Direct labor | $ 4.00 |
Variable manufacturing |
$ 8.00 |
Fixed manufacturing overhead (at current production level) | $ 9.00 |
Variable selling expenses | $ 10.00 |
The Computer Division of Lang Manufacturing can use the video card produced by the Small Components Division and is interested in purchasing the video card in-house rather than buying it from an outside supplier. The Small Components Division has sufficient excess capacity with which to make the extra video cards. Because of competition, the market price for this video card is $30 regardless of whether the video card is produced by Lang Manufacturing or another company.
Requirements
- 1. What is the highest acceptable transfer price for the divisions?
- 2. Assuming the transfer price is negotiated between the divisions of the company, what would be the lowest acceptable transfer price? Assume variable selling expenses pertain to outside sales only.
- 3. Which transfer price would the manager of the Small Components Division prefer? Which transfer price would the manager of the Computer Division prefer?
- 4. If the company’s policy requires that all in-house transfers must be priced at full absorption cost plus 14%, what transfer price would be used? Assume that the increased production level needed to fill the transfer would result in fixed manufacturing overhead decreasing by $3.00 per unit. (Round your answer to the nearest cent.)
- 5. If the company’s policy requires that all in-house transfers must be priced at total manufacturing variable cost plus 18%, what transfer price would be used? Assume that the company does not consider fixed manufacturing overhead in setting its internal transfer price in this scenario. (Round your answer to the nearest cent.)
- 6. Assume now that the company does incur the variable selling expenses on internal transfers. If the company policy is to set transfer prices at 102% of the sum of the full absorption cost and the variable selling expenses, what would the transfer price be set at? Assume that the fixed manufacturing overhead would drop by $3.00 per unit as a result of the increased production resulting from the internal transfers. (Round your answer to the nearest cent.)
Want to see the full answer?
Check out a sample textbook solutionChapter 10 Solutions
Managerial Accounting (5th Edition)
- I have the following information: direct materials $250 and total manufacturing cost $700. Overhead applied to jobs at a rate of 200% of direct labor cost. This is for Chapter 2 job costing in managerial accounting. I am supposed to figure out conversion cost, direct labor cost, and manufacturing overhead. I know the formula for conversion cost= direct labor + manufacturing OH Prime cost= direct labor + direct materials How do I figure out direct labor cost with the given information? The learning objective states calcualte predetermined overhead rate, but I do not have estimated manufacturing cost and estimated labor. Can you please help? Thanks, Erica Gordonarrow_forwardProblem: Module 6 Textbook Problem 6 Learning Objective: 6-3 Make appropriate outsourcing decisions Benson Electronics currently produces the shipping containers it uses to deliver the electronics products it sells. The monthly cost of producing 9,400 containers follows. Unit-level materials Unit-level labor Unit-level overhead Product-level costs* Allocated facility-level costs $ 6,600 6,300 4,000 9,900 26,400 *One-third of these costs can be avoided by purchasing the containers. Russo Container Company has offered to sell comparable containers to Benson for $2.80 each. Required a. Calculate the total relevant cost. Should Benson continue to make the containers? b. Benson could lease the space it currently uses in the manufacturing process. If leasing would produce $12,400 per month, calculate the total avoidable costs. Should Benson continue to make the containers? a. Total relevant cost Should Benson continue to make the containers? b. Total avoidable cost Should Benson continue to…arrow_forwardE4-23A Use ABC to allocate manufacturing overhead (Learning Objective 2) Several years after reengineering its production process, Biltmore Corporation hired a new controller, Rachael Johnson. She developed an ABC system very similar to the one used by Biltmore’s chief rival, Westriver. Part of the reason Johnson developed the ABC system was because Biltmore’s profits had been declining even though the company had shifted its product mix toward the product that had appeared most profitable under the old system. Before adopting the new ABC system, Biltmore had used a plantwide overhead rate based on direct labor hours that was developed years ago. For the upcoming year, Biltmore’s budgeted ABC manufacturing overhead allocation rates are as follows: Activity Allocation Base Activity Cost Allocation Rate Materials handling # of parts $3.84 per part Machine setup # of setups $330.00 per setup Insertion of parts # of parts $30.00 per part Finishing Finishing DL hrs $54.00 per hour The…arrow_forward
- Problem: Module 6 Textbook Problem 6 Learning Objective: 6-3 Make appropriate outsourcing decisions Perez Electronics currently produces the shipping containers it uses to deliver the electronics products it sells. The monthly cost of producing 9.200 containers follows. Unit-level materials Unit-level labor Unit-level overhead Product-level costs Allocated facility-level costs $5,400 6,800 4,100 9,600 27,900 "One-third of these costs can be avoided by purchasing the containers. Russo Container Company has offered to sell comparable containers to Perez for $2.80 each.. Required a. Calculate the total relevant cost. Should Perez continue to make the containers? b. Perez could lease the space it currently uses in the manufacturing process. If leasing would produce $11,700 per month, calculate the total avoidable costs. Should Perez continue to make the containers? a Total relevant cost Should Perez continue to make the containers? b. Total avoidable cost Should Perez continue to make the…arrow_forwardE19-15 Computing and using single plantwide overhead allocation rate Learning Objective 1 Basic $322,000 Koehler makes handheld calculators in two models: basic and professional. Koehler estimated $721,000 of manufacturing overhead and 515,000 machine hours for the year. The basic model actually consumed 230,000 machine hours, and the professional model consumed 285,000 machine hours. Compute the predetermined overhead allocation rate using machine hours (MHr) as the allocation base. How much overhead is allocated to the basic model? To the professional model?arrow_forwardTask 2: CLO4 OBJECTIVE: To enable learners to identify the relevant costs and benefits from costs and revenue information available in the financial database to aid decision making on time. REQUIREMENT: Short term decision making Question Selma Corporation uses Part PB7 in one of its products. The company's Accounting Department reports the following costs to produce 7,000 units of the PB7 that are needed every year. $ per unit Direct materials 7.00 Direct labour 6.00 Variable overhead 5.60 Supervisor's salary Depreciation of special equipment Allocated general overhead 4.70 1.50 5.40 An outside supplier has offered to make the part and sell it to the company for $28.30 each. If this offer is accepted, the supervisor's salary and all of the variable costs, including direct labor, can be avoided. The special equipment used to make the part was purchased many years ago and has no salvage value or other use. The allocated general overhead represents fixed costs of the entire company. If…arrow_forward
- https://education.aima.in/processOnlineExam.action?onlineAssignmentDefinition.id 1444118538- Google Chrome A education.aima.in/processOnlineExam.action?onlineAssignmentDefinition.id=1444118538 A company produces X, Y and Z from a raw material M. For every 100 tonnes ofM put into production it obtains 50 tons of product X, 30 tons of Y and 15 tons of Z, while 5 tons goes as waste. The selling price of X, Y and z is Rs. 40. Rs, 60 and Rs. 80 per ton. The cost of raw material M is Rs. 20 and variable processing costs are Rs. 10. Variable marketing costs are budgeted to be at the rate of 10 percent of sales value. Budgeted fixed overheads per annum are: Manufacturing - Rs. 40,000, Marketing - Rs. 30,000, and Administration - Rs. 20,000. The company intends to process 10,000 tonnes of material M in the coming year. or Question 21:- Fixed Cost is Rs. a) O 75000 b) O 60000 E c) 90000 d) O 55000 TH NO Question 22:- Contribution is Rs. a) O 12 per unit b) . 15 per unit F c)O 16 per unit d) O 18…arrow_forwardeleam.squ.euu.om/mod/qu12/attempt.p learning System (Academic) stion 3 Company XYZ uses machine hours to allocate its manufacturing overhead. The company estimates that total machine hours to be operated next year are 190,000 hours. The estimated variable overhead is $9 per hour and the estimated fixed overhead costs are $152,000. Calculate wer saved ked out of 2 the predetermined overhead rate. lag question Select one: O a. $9.80 O b. $0.80 O c. $10.80 O d. $0.10 O e. None of the answers given Clear my choicearrow_forwardRelevant Costs for Short-Ten ating income data for the year just ended: Members of the board of directors of Security Alliance have received the following oper- P8-50A Prepare and use contribution margin statements for discontinuing a ine decision (Learning Objective 4) a Security Alliance Product Line Contribution Margin Income Statement For the Year Product lines Industrial Household Systems 5. 6 Sales revenue 7 Less cost of goods sold: Variable Systems 380,000 $ Company Total 690,000 2$ 310,000 8 46,000 32,000 280,000 (2,000) $ 78,000 346,000 266,000 Fixed 9. 10 Gross profit 11 Less marketing and administrative expenses: Variable 66,000 268,000 13 14 Operating income (loss) 15 12 Fixed 63,000 37,000 (102,000) $ 69,000 23,000 176,000 $ 132,000 60,000 74,000 Members of the board are surprised that the industrial systems product line is losing money. They commission a study to determine whether the company should discontinue the line. Company accountants estimate that discontinuing the…arrow_forward
- Harriman Industries manufactures engines for the aerospace industry. It has completed manufacturing the first unit of the new ZX-9 engine design. Management believes that the 1,000 labor hours required to complete this unit are reasonable and is prepared to go forward with the manufacture of additional units. An 80 percent cumulative average-time learning curve model for direct labor hours is assumed to be valid. Data on costs are as follows: Required: 1. Set up a table with columns for cumulative number of units, cumulative average time per unit in hours, and the cumulative total time in hours. Complete the table for 1, 2, 4, 8, 16, and 32 units. (Round hours to one significant digit.) 2. What are the total variable costs of producing 1, 2, 4, 8, 16, and 32 units? What is the variable cost per unit for 1, 2, 4, 8, 16, and 32 units?arrow_forward$4-3 Compute departmental overhead rates (Learning Objective 1) Snyder Snacks makes potato chips, corn chips, and cheese puffs using three different pro- du es wi the same manufacturing plant. Currently, Snyder uses a single plant- wide overhead rate to allocate its $3,311,500 of annual manufacturing overhead. Of this amount, $2,070,000 is associated with the potato chip line, $763,000 is associated with the corn chip line, and $478,500 is associated with the cheese puff line. Snyder's plant is currently running a total of 17,900 machine hours: 11,500 in the potato chip line, 3,500 in the corn chip line, and 2,900 in the cheese puff line. Snyder considers machine hours to be the cost driver of manufacturing overhead costs. 1. What is Snyder's plantwide overhead rate? 2. Calculate the departmental overhead rates for Snyder's three production lines. Round all answers to the nearest cent. 3. Which products have been overcosted by the plantwide rate? Which products have been undercosted by…arrow_forwardFanning Academy is a profit-oriented education business. Fanning provides remedial training for high school students who have fallen behind in their classroom studies. It charges its students $730 per course. During the previous year, Fanning provided instruction for 1,000 students. The income statement for the company follows: Revenue Cost of instructors Overhead costs Net income $ 730,000 (434,000) (232,500) $ 63,500 The company president, Andria Rossi, indicated in a discussion with the accountant, Sam Trent, that she was extremely pleased with the growth in the area of computer-assisted instruction. She observed that this department served 300 students using only three part- time instructors. In contrast, the classroom-based instructional department required 28 instructors to teach 700 students. Ms. Rossi noted that the per-student cost of instruction was dramatically lower for the computer-assisted department. She based her conclusion on the following information: Fanning pays its…arrow_forward
- Cornerstones of Cost Management (Cornerstones Ser...AccountingISBN:9781305970663Author:Don R. Hansen, Maryanne M. MowenPublisher:Cengage Learning