2A-C In each of the cases below, assume Division X has a product that can be sold either to outsidecustomers or to Division Y of the same company for use in its production process. The managers ofthe divisions are evaluated based on their divisional profits.CaseABDivision 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)101,000101,0002$93,00071,0005429$28$148 $4Division Y:Number of units needed for production22,00022,000Purchase price per unit now being paidto an outside supplier50 $28Required:2. Refer to the data in case B above. In this case, there will be no savings in variable selling costs 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 tonegotiate and make decisions on their own, will a transfer probably take place?

Transfer pricing is the price at which one division sells or provides goods or services to another…

2. Refer to the data in case B above. In this case, there will be no savings in variable selling costs 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?

2. Refer to the data in case B above. In this case, there will be no savings in variable selling costs 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?

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter10: Evaluating Decentralized Operations

Section: Chapter Questions

Problem 18E

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Rocky Mountain Airlines Inc. has two divisions organized as profit centers, the Passenger Division and the Cargo Division. The following divisional income statements were prepared: The support department allocation rates for the support department costs were based on revenues. Because the revenues of the two divisions were the same, the support department allocations to each division were also the same. The following additional information is available: a.Does the operating income (loss) for the two divisions accurately measure performance? Explain. b.Correct the divisional income statements, using appropriate support department cost drivers.
Assume you are the department B manager for Marleys Manufacturing. Marleys operates under a cost-based transfer structure. Assume you receive the majority of your raw materials from department A, which sells only o 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.)
A multinational corporation has a number of divisions, two of which are the North American Division and the Pacific Rim Division. Data on the two divisions are as follows: Round all rates of return to four significant digits. Required: 1. Compute residual income for each division. By comparing residual income, is it possible to make a useful comparison of divisional performance? Explain. 2. Compute the residual rate of return by dividing the residual income by the average operating assets. Is it possible now to say that one division outperformed the other? Explain. 3. Compute the return on investment for each division. Can we make meaningful comparisons of divisional performance? Explain. 4. Add the residual rate of return computed in Requirement 2 to the required rate of return. Compare these rates with the ROI computed in Requirement 3. Will this relationship always be the same?
The condensed income statement for the Consumer Products Division of Tri-State Industries Inc. is as follows (assuming no support department allocations): The manager of the Consumer Products Division is considering ways to increase the return on investment. a. Using the DuPont formula for return on investment, determine the profit margin, investment turnover, and return on investment of the Consumer Products Division, assuming that 143,750,000 of assets have been invested in the Consumer Products Division. b. If expenses could be reduced by 3,450,000 without decreasing sales, what would be the impact on the profit margin, investment turnover, and return on investment for the Consumer Products Division?
Refer to the data given in Exercise 10.8. Required: 1. Compute the residual income for each of the opportunities. (Round to the nearest dollar.) 2. Compute the divisional residual income (rounded to the nearest dollar) for each of the following four alternatives: a. The Espresso-Pro is added. b. The Mini-Prep is added. c. Both investments are added. d. Neither investment is made; the status quo is maintained. Assuming that divisional managers are evaluated and rewarded on the basis of residual income, which alternative do you think the divisional manager will choose? 3. Based on your answer in Requirement 2, compute the profit or loss from the divisional managers investment decision. Was the correct decision made?
To determine the effect of different levels of production on the company’s income, move to cell B7 (Actual production). Change the number in B7 to the different production levels given in the table below. The first level, 100,000, is the current level. What happens to the operating income on both statements as production levels change? Enter the operating incomes in the following table. Does the level of production affect income under either costing method? Explain your findings.
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 A B Division X: Capacity in units 200,000 200,000 Number of units being sold to outside customers 200,000 160,000 Selling price per unit to outside customers $ 90 $ 75 Variable costs per unit $ 70 $ 60 Fixed costs per unit (based on capacity) $ 13 $ 8 Division Y: Number of units needed for production 40,000 40,000 Purchase price per unit now being paid to an outside supplier $ 86 $ 74 Exercise 11-13 (Static) Part 2 Required:2. Refer to the data in case B above. In this case, there will be no savings in variable selling costs 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…
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…
In 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 100,000 100,000 Number of units being sold to outside customers 100,000 80,000 Selling price per unit to outside customers $50 $35 Variable costs per unit $30 $20 Fixed costs per unit (based on capacity) $8 $6 Division Y: Number of units needed for production 20,000 20,000 Purchase price per unit now being paid to an outside supplier $47 $34 Required:1-a. Refer to the data in case A above. Assume that $2 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 a transfer take place? multiple…
Assume that Steel Division has a product that can be sold either to outside customers on an intermediate market or to Fabrication Division of the same company for use in its production process. The different divisions are evaluated based on their divisional profits. Steel Division:Capacity in units 200,000No. of units being sold on the intermediate market 200,000Selling price per unit on the intermediate market P90Variable cost per unit inclusive of variable selling expense of P370Fixed cost per unit (based on capacity) 13 Fabrication Division:No. of units needed for production 40,000 Purchase price per unit now being paid to as outside supplier…
In the Bombadier Company, Division A has a product that can be sold either to outside customers or to Division B. Information about these divisions is given below: Case 1 Case 2 Division A: Capacity in units 100,000 100,000 Number of units sold externally 100,000 60,000 Market selling price $90 $75 Variable costs per unit 73 58 Fixed costs per unit based on capacity 10 10 Division B: Number of units needed for production 40,000 40,000 Purchase price per unit from external supplier $86 $74 The company uses the opportunity cost approach to transfer pricing. Which case should not be transferred internally? a.Both should be transferred internally. b.Neither should be transferred internally. c.Case 1 d.Case 2
Alpha and Beta are divisions within the same company. The managers of both divisions are evaluated based on their own division’s return on investment (ROI). Assume the following information relative to the two divisions: Case 1 2 3 4 Alpha Division: Capacity in units 54,000 316,000 107,000 203,000 Number of units now being sold tooutside customers 54,000 316,000 82,000 203,000 Selling price per unit to outsidecustomers $ 99 $ 40 $ 65 $ 46 Variable costs per unit $ 61 $ 17 $ 38 $ 32 Fixed costs per unit (based oncapacity) $ 25 $ 9 $ 23 $ 8 Beta Division: Number of units needed annually 9,900 69,000 18,000 64,000 Purchase price now being paid toan outside supplier $ 90 $ 38 $ 65 * — *Before any purchase discount. Required: 1. Refer to case 1 shown above. Alpha Division can avoid $5 per unit in commissions on any sales to Beta Division. a. What is Alpha Division's lowest…