Ajax Division of Soap Corporation produces soap, 20 percent of which are sold to Axion Division of Soap Corporation. The remainder is sold to outside customers. Soap treats its divisions as profit centers and allows division managers to choose their sources of sale and supply. Corporate policy requires that all interdivisional sales and purchases be recorded at variable cost as transfer price. Ajax Division's estimated sales and standard cost data for the year ending December 31, 2000, based on capacity of 100,000 units, are as follows: Axion Outsiders Sales P8,000,000 (3,6000,00) (1,200,000) 320,0000 80,000 P900,000 Variable costs (P900,000) (300,000) (300,000) 20,000 Fixed costs Gross margin Unit sales Ajax has an opportunity to sell the 20,000 units shown above to an outside customer at a price of P75 per unit. Axion can purchase its requirements from an outside supplier at a price of P85 per unit. Required: 1. Assuming that Ajax Division desires to maximize its gross margin, should Ajax take on the new customer and drop its sales to Axion in the current year? Why? ito divicion managers to negotiate the
Ajax Division of Soap Corporation produces soap, 20 percent of which are sold to Axion Division of Soap Corporation. The remainder is sold to outside customers. Soap treats its divisions as profit centers and allows division managers to choose their sources of sale and supply. Corporate policy requires that all interdivisional sales and purchases be recorded at variable cost as transfer price. Ajax Division's estimated sales and standard cost data for the year ending December 31, 2000, based on capacity of 100,000 units, are as follows: Axion Outsiders Sales P8,000,000 (3,6000,00) (1,200,000) 320,0000 80,000 P900,000 Variable costs (P900,000) (300,000) (300,000) 20,000 Fixed costs Gross margin Unit sales Ajax has an opportunity to sell the 20,000 units shown above to an outside customer at a price of P75 per unit. Axion can purchase its requirements from an outside supplier at a price of P85 per unit. Required: 1. Assuming that Ajax Division desires to maximize its gross margin, should Ajax take on the new customer and drop its sales to Axion in the current year? Why? ito divicion managers to negotiate the
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter10: Decentralization: Responsibility Accounting, Performance Evaluation, And Transfer Pricing
Section: Chapter Questions
Problem 4CE
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