Determine the gross profit per unit for Division B based on the following transfer pricing method:1. Gross profit per unit for Division B under Variable product cost method2. Gross profit per unit for Division B under Full product cost plus 40% mark-up based on cost method3. Gross profit per unit for Division B under Negotiated price method The TP Company has two divisions, Division A and Division B. Division A produces a part that is usedin the finished product of Division B. The cost of producing each part are:Direct MaterialsDirect LaborVariable overheadFixed costsP 4P 2P 2P2The part is sold in the highly competitive market for P12 each.Division Bis buying 60% of the output of Division A currently at a negotiated price of P11 each. Dueto emphasis on divisional welfare rather than company welfare, a new transfer price must bedeveloped. The suggestion was to add 40% to the total costs of the part when transferring to DivisionB. Another proposal was to use the variable costs of P8 per part in arriving at a transfer price. DivisionA transferred 1,000 parts to Division B.Pertinent data of Division Bas follows:In addition to the transfer price of each part, there are additional processing and marketing costs ofP6 and P4 per unit, respectively. The selling price of the finished product of Division Bis P26.

Determine the gross profit per unit for Division B based on the following transfer pricing method: 1. Gross profit per unit for Division B under Variable product cost method 2. Gross profit per unit for Division B under Full product cost plus 40% mark-up based on cost method 3. Gross profit per unit for Division B under Negotiated price method

Determine the gross profit per unit for Division B based on the following transfer pricing method: 1. Gross profit per unit for Division B under Variable product cost method 2. Gross profit per unit for Division B under Full product cost plus 40% mark-up based on cost method 3. Gross profit per unit for Division B under Negotiated price method

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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