6. What should be the optimum transfer price (the lowest acceptable transfer price by Division A)? 7. If Division B is currently buying from an outside supplier at $98 per unit, what will be the effect on overall company profits if internal sales take place at the optimum transfer price?
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
Use the following information for the next 2 questions (6 & 7).
Division A has a capacity of 2,000 units. Its sales and cost data are:
Selling price per unit $100 Variable
Division A is currently selling 1,900 units to outside customers, and Division B wants to purchase 300 units from A. If the transaction takes place, the variable administrative costs per unit on the units transferred to B will be $2/unit, not $5/unit.
6. What should be the optimum transfer price (the lowest acceptable transfer price by Division A)?
7. If Division B is currently buying from an outside supplier at $98 per unit, what will be the effect on overall company profits if internal sales take place at the optimum transfer price?
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