Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN: 9781305970663
Author: Don R. Hansen, Maryanne M. Mowen
Publisher: Cengage Learning
expand_more
expand_more
format_list_bulleted
Question
Chapter 10, Problem 30P
1.
To determine
Identify the transfer price.
2.
To determine
Identify the maximum and minimum transfer prices and identify the actual transfer price.
3.
To determine
Identify the expected transfer price, profits of the firm increased under the given agreement, and increase in the profits of the appliance division.
Expert Solution & Answer
Trending nowThis is a popular solution!
Students have asked these similar questions
Dakota Security Systems (DSS) is a decentralized organization that evaluates divisional management based on measures of
divisional contribution margin. Residential Division and Commercial Division both sell security and monitoring equipment.
Residential sells primarily to home owners and apartment management companies. Commercial focuses on small to medium-
sized businesses. Residential sells a particular alarm to the outside market for $255 per unit. The outside market can absorb up
to 48,300 units per year. These units require 3 direct labor-hours each.
If Residential modifies the units with an additional 0.75 hour of labor time, it can sell them to Commercial for $282 per unit.
Commercial will accept up to 41,400 of these units per year.
If Commercial does not obtain 41,400 units from Residential, it purchases them for $291 each from the outside. Commercial
incurs $147 of additional labor and other out-of-pocket costs to convert the alarm (either from Residential or outside) into…
The Valve Division of Industrial Company produces a small valve that is used by various companies as a component part in their products. Industrial Company operates its divisions as autonomous units, giving its divisional manager great discretion in pricing and other decisions. Each division is expected to generate a rate of return of at least 14 percent on its operating assets. The Valve Division has average operating assets of P700,000. The valves are sold for P5 each. Variable costs are P3 per valve, and fixed costs total P462,000 per year. The Division has a capacity of 300,000 units.How many valves must the Valve Division sell each year to generate the desired rate of return on its assets?
Soft Cushion Company is highly decentralized. Each division is empowered to make its own sales decisions. The Assembly Division can purchase stuffing, a key component, from the Production Division or from external suppliers. The Production Division has been the major supplier of stuffing in recent years. The Assembly Division has announced that two external suppliers will be used to purchase the stuffing at $26per pound for the next year. The Production Division recently increased its unit price to $54.The manager of the Production Division presented the following information
—
variable cost
$38
and fixed cost
$14
—
to top management in order to attempt to force the Assembly Division to purchase the stuffing internally. The Assembly Division purchases
21,000 pounds of stuffing per month.
What would be the monthly operating advantage (disadvantage) of purchasing the goods internally, assuming the external supplier increased its price to $88 per pound and the Production Division…
Chapter 10 Solutions
Cornerstones of Cost Management (Cornerstones Series)
Ch. 10 - Prob. 1DQCh. 10 - Explain why firms choose to decentralize.Ch. 10 - Explain how access to local information can...Ch. 10 - What are margin and turnover? Explain how these...Ch. 10 - What are the three benefits of ROI? Explain how...Ch. 10 - What are two disadvantages of ROI? Explain how...Ch. 10 - What is residual income? Explain how residual...Ch. 10 - Prob. 8DQCh. 10 - Prob. 9DQCh. 10 - What is a transfer price?
Ch. 10 - Prob. 11DQCh. 10 - If the minimum transfer price of the selling...Ch. 10 - If an outside, perfectly competitive market exists...Ch. 10 - Prob. 14DQCh. 10 - Prob. 15DQCh. 10 - Forchen, Inc., provided the following information...Ch. 10 - Refer to Cornerstone Exercise 10.1. Forchen, Inc.,...Ch. 10 - Ignacio, Inc., had after-tax operating income last...Ch. 10 - Prob. 4CECh. 10 - Prob. 5CECh. 10 - Prob. 6CECh. 10 - Jarriot, Inc., presented two years of data for its...Ch. 10 - Refer to Exercise 10.7 for data. At the end of...Ch. 10 - Refer to the data given in Exercise 10.8....Ch. 10 - Brewster Company manufactures elderberry wine....Ch. 10 - Xenold, Inc., manufactures and sells cooktops and...Ch. 10 - Prob. 12ECh. 10 - Jocassee Furniture Manufacturing, Inc., has a...Ch. 10 - Prob. 14ECh. 10 - Mossfort, Inc., has a division in Canada that...Ch. 10 - A multinational corporation has a number of...Ch. 10 - Consider the data for each of the following four...Ch. 10 - The following selected data pertain to the Argent...Ch. 10 - Prob. 19ECh. 10 - The key difference between residual income and EVA...Ch. 10 - If sales and average operating assets for Year 2...Ch. 10 - Prob. 22ECh. 10 - Refer to 10.22. If the imputed interest rate is...Ch. 10 - A company had WACC (weighted average cost of...Ch. 10 - Prob. 25PCh. 10 - Raddington Industries produces tool and die...Ch. 10 - Prob. 27PCh. 10 - Prob. 28PCh. 10 - Oriole, Inc., owns a number of food service...Ch. 10 - Prob. 30PCh. 10 - Prob. 31PCh. 10 - Renslen, Inc., a truck manufacturing conglomerate,...Ch. 10 - Jump Start Company (JSC), a subsidiary of Mason...Ch. 10 - Prob. 34PCh. 10 - Grate Care Company specializes in producing...
Knowledge Booster
Similar questions
- Materials used by the Instrument Division of Ziegler Inc. are currently purchased from outside suppliers at a cost of 1,350 per unit. However, the same materials are available from the Components Division. The Components Division has unused capacity and can produce the materials needed by the Instrument Division at a variable cost of 900 per unit. a. If a transfer price of 1,000 per unit is established and 75,000 units of materials are transferred, with no reduction in the Components Divisions current sales, how much would Ziegler Inc.s total operating income increase? b. How much would the Instrument Divisions operating income increase? c. How much would the Components Divisions operating income increase?arrow_forwardVarney Corporation, a manufacturer of electronics and communications systems, allocates Computing and Communications Services Department (CCS) costs to profit centers. The following table lists the types of services and cost drivers for each service. The table also includes the budgeted cost and quantity for each service for August. One of the profit centers for Varney Corporation is the Communication Systems (COMM) division. Assume the following information for COMM: COMM has 2,500 employees, of whom 20% are office employees. All of the office employees have been issued a smartphone, and 95% of them have a computer on the network. One hundred percent of the employees with a computer also have an email account. The average number of help desk calls for August was 0.6 call per individual with a computer. There are 400 additional printers, servers, and peripherals on the network beyond the personal computers. a. Compute the service allocation rate for each of CCSs services for August. b. Compute the allocation of CCSs services to COMM for August.arrow_forwardCascade Containers is organized into two divisions-Manufacturing and Distribution. Manufacturing produces a product that can be sold immediately or transferred to Distribution for further processing and then sold. Distribution only buys from Manufacturing for quality control reasons. Manufacturing currently sells 2,400 units annually at a price of $600 per unit to outside customers. It sells an additional 1,200 units to Distribution. The unit variable cost in Manufacturing is $300 and annual fixed costs are $300,000. Manufacturing is located in a country with a 20 percent tax rate. Distribution can sell units that have had further processing for $1,200 each. In addition to what it pays Manufacturing, the variable costs in Distribution are $150 per unit. Annual fixed costs in Distribution are $360,000. Distribution is located in a country with a 10 percent tax rate. Required: a. Suppose Manufacturing would have excess capacity even with the demand from Distribution. Ignoring tax…arrow_forward
- The composting division has identified a source of additional compostable waste at a price of $205 per ton. What would be the impact on the company as a whole if the 400 tons of material is purchased from the outside supplier? As a decentralized unit, what decision would the composting division make regarding the additional material?arrow_forwardTimekeeper Corporation has two divisions, Distribution and Manufacturing. The company's primary product is high−end watches. Each division's costs are provided below: Manufacturing:Variable costs per unit $1.81 Fixed costs per unit $9.52 Distribution: Variable costs per unit $1.20 Fixed costs per unit $1.00 The Distribution Division has been operating at a capacity of 4,003,000 units a week and usually purchases 2,001,500 units from the Manufacturing Division and 2,001,500 units from other suppliers at $13.50 per unit. Assume 100,000 units are transferred from the Manufacturing Division to the Distribution Division for a transfer price of $10.00 per unit. The Distribution Division sells the 100,000 units at a price of $17 each to customers. What is the operating income of both divisions together? A. $566,500 B. $952,000 C. $347,000 D. $401,000arrow_forwardWhich allocation base do you think the manager of the Brothers division would prefer? Explainarrow_forward
- Timekeeper Corporation has two divisions, Distribution and Manufacturing. The company's primary product is high−end watches. Each division's costs are provided below: Manufacturing: Variable costs per unit $3.45 Fixed costs per unit $9.85 Distribution: Variable costs per unit $0.70 Fixed costs per unit $0.50 The Distribution Division has been operating at a capacity of 4,003,000units a week and usually purchases 2,001,500 units from the Manufacturing Division and 2,001,500 units from other suppliers at $15.50 per unit. What is the transfer price per watch from the Manufacturing Division to the Distribution Division, assuming the method used to place a value on each transfer is 125% of full costs? A. $20.15 B. $16.63 C. $15.50 D. $13.30arrow_forwardTimekeeper Corporation has two divisions, Distribution and Manufacturing. The company's primary product is high−end watches. Each division's costs are provided below: Manufacturing: Variable costs per unit $1.95 Fixed costs per unit $8.17 Distribution: Variable costs per unit $1.10 Fixed costs per unit $1.00 The Distribution Division has been operating at a capacity of 4,007,000 units a week and usually purchases 2,003,500 units from the Manufacturing Division and 2,003,500 units from other suppliers at $16.00 per unit. What is the transfer price per watch from the Manufacturing Division to the Distribution Division, assuming the method used to place a value on each watch is 160% of variable costs? (Round the answer to the nearest cent.) A. $14.05 B. $3.89 C. $1.95 D. $3.12arrow_forwardGermano Products, Incorporated, has a Pump Division that manufactures and sells a number of products, including a standard pump that could be used by another division in the company, the Pool Products Division, in one of its products. Data concerning that pump appear below: Capacity in units 72,500 Selling price to outside customers $ 79 Variable cost per unit $ 28 Fixed cost per unit (based on capacity) $ 32 The Pool Products Division is currently purchasing 17,000 of these pumps per year from an overseas supplier at a cost of $74 per pump. Assume that the Pump Division is selling all of the pumps it can produce to outside customers. Does there exist a transfer price that would make both the Pump and Pool Products Division financially better off than if the Pool Products Division were to continue buying its pumps from the outside supplier?arrow_forward
- Wetherald Products, Incorporated, has a Pump Division that manufactures and sells a number of products, including a standard pump that could be used by another division in the company, the Pool Products Division, in one of its products. Data concerning that pump appear below: Capacity in units 55,000 Selling price to outside customers $ 82 Variable cost per unit $53 Fixed cost per unit (based on capacity) $11 The Pool Products Division is currently purchasing 4,000 of these pumps per year from an overseas supplier at a cost of $74 per pump. Assume that the Pump Division has enough idle capacity to handle all of the Pool Products Division's needs. What should be the minimum acceptable transfer price for the pumps from the standpoint of the Pump Division? Multiple Choice $74 per unit $53 per unit $64 per unit $82 per unitarrow_forwardThe machining division of Sheridan International has a capacity of 2,130 units. Its sales and cost data are: Selling price per unit $75 Variable manufacturing costs per unit Variable selling costs per unit Total fixed manufacturing overhead 20 4 197,000 The machining division is currently selling 1,930 units to outside customers, and the assembly division of Sheridan International wants to purchase 400 units from machining. If the transaction takes place, the variable selling costs per unit on the units transferred to assembly will be $0/unit, and not $4/unit. What should be the transfer price in order not to affect the machining division's current profit? (Round answer to 2 decimal places e.g. 5.25.) Minimum transfer price Senter the minimum transfer price in dollars rounded to 2 decimal placesarrow_forwardHamlet Industries is organized into two divisions, Fabrication and Finishing. Both divisions are considered to be profit centers, and the two division managers are evaluated in large part on divisional income. The company makes a single product. It is manufactured in Fabrication and then packaged and sold in Distribution. There is no intermediate market for the product. The monthly income statements, in thousands of dollars, for the two divisions follow. Production and sales amounted to 34,800 units. Revenues Variable costs Contribution margin Fixed costs Divisional profit Assume there is no special order pending. Required: a. What transfer price would you recommend for Hamlet Industries? b. Using your recommended transfer price, what will be the income of the two divisions, assuming monthly production and sales of 34,800 units? to search c. The manager of the Fabrication Division complains about the transfer price, saying that division profits are unfairly low. The two division…arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- Cornerstones of Cost Management (Cornerstones Ser...AccountingISBN:9781305970663Author:Don R. Hansen, Maryanne M. MowenPublisher:Cengage LearningManagerial AccountingAccountingISBN:9781337912020Author:Carl Warren, Ph.d. Cma William B. TaylerPublisher:South-Western College PubFinancial And Managerial AccountingAccountingISBN:9781337902663Author:WARREN, Carl S.Publisher:Cengage Learning,
Cornerstones of Cost Management (Cornerstones Ser...
Accounting
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Cengage Learning
Managerial Accounting
Accounting
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:South-Western College Pub
Financial And Managerial Accounting
Accounting
ISBN:9781337902663
Author:WARREN, Carl S.
Publisher:Cengage Learning,