Costs and Transfer Price

1802 Words Sep 25th, 2013 8 Pages
Assignment: Analyze the Case and answer the following questions:

Case Background

ZUMWALD AG produced and sold a range of medical diagnostic imaging systems and biomedical test equipment and instrumentation. Below were some data about the company * Consisted of 6 operating divisions
3 of them were: * Imaging System Division (ISD) sold ultrasound and magnetic imaging system * Heidelberg Division (Heidelberg) sold high resolution monitors, graphics controllers and display subsystems 50% served ISD, 50% outside customer * Electronic Component Division (ECD) sold application specific integrated circuits and subassemblies. It was established as a captive supplier to other Zumwald divisions but now served
…show more content…
As its capacity currently was 70%, there was no opportunity cost to be added. Therefore the actual lower bound Heidelberg could offer was € 50,000. However that price would give zero profit to Heidelberg. To make the profit positive, Heidelberd could do some markup (eg. 33%). This profit was beneficial for Heidelberg to cover some fixed cost.

c. The Electronic Components Division?
ECD has been set as internal supplier whose pricing has been standardized to that purpose. with 20% marked up from Absorption cost.

This was actually the proper transfer pricing for the company in supplying to other division. Item | ECD Current | | | Manufacturing cost | 18,000 | | | Profit Margin (20%) | 3,600 | | | Price Component for X 73 | 21,600 | | |

d. Zumwald AG?
Since Display Tech was the one who win bidding, from the launching of X73, Zumwald would get profit only from ISD Division amounting of € 23,500, as describe on the Calculation below

Item | Supplier | | Display Tech | Price X 73 | 340,000 | | | Direct Material | 100,500 | Other Component | 72,000 | Conversion cost | | Variable overhead | 27,000 | Fixed cost | 117,000 | | | Total cost | 316,500 | | | Profit Margin | 23,500

More about Costs and Transfer Price

Open Document