Lou and Vega are the only two divisions in LV Company. Lou makes and sells motors which can either be sold to outside customers or sold to Vega. The following data are available Lou Vega Selling Price per motor to outside customers Variable Costs per motor when sold to outside customers Capacity in motors motors sold to outside customers P45 P30 12,000 6,000 Number of motors needed/month Price per motor paid to an outside supplier If Lou sells the motors to Vega, Lou can avoid P2 per motor in sales commisions 4,000 P42
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- Bostonian Inc. has a number of divisions, including the Delta Division and the Listen Now Division. The Listen Now Division owns and operates a line of MP3 players. Each year, the Listen Now Division purchases component AZ in order to manufacture the MP3 players. Currently, it purchases this component from an outside supplier for $6.50 per component. The manager of the Delta Division has approached the manager of the Listen Now Division about selling component AZ to the Listen Now Division. The full product cost of component AZ is $3.10. The Delta Division can sell all of the component AZs it makes to outside companies for $6.50. The Listen Now Division needs 18,000 component AZs per year; the Delta Division can make up to 60,000 components per year. Required: A. Which division sets the maximum transfer price? Which division sets the minimum transfer price? Maximum Minimum B. Suppose the company policy is that all transfer take place at full cost. What is the transfer…The Mandalorian Company has two divisions, Production and Marketing. Production manufactures Beskar Head Armour for Knights of the Old Republic, which it sells to both the Marketing Division and to other retailers (the latter under a different brand name). Marketing operates several small armour stores in shopping centers throughout Corruscant. Marketing sells both Beskar Head Armour and other brands. Relevant facts for Production are as follows: Sales Price to Outsiders.............................................................$28.50 per Pcs Variable Cost to Produce...........................................................$18.00 per Pcs Fixed Costs ................................................................................$100,000 per Month The following data pertain to the sale of Mandalorian Company Beskar Head Armour by Marketing: Marketing is operating far below its capacity. Sales…The Mandalorian Company has two divisions, Production and Marketing. Production manufactures Beskar Head Armour for Knights of the Old Republic, which it sells to both the Marketing Division and to other retailers (the latter under a different brand name). Marketing operates several small armour stores in shopping centers throughout Corruscant. Marketing sells both Beskar Head Armour and other brands. Relevant facts for Production are as follows: Sales Price to Outsiders.............................................................$28.50 per Pcs Variable Cost to Produce...........................................................$18.00 per Pcs Fixed Costs ................................................................................$100,000 per Month The following data pertain to the sale of Mandalorian Company Beskar Head Armour by Marketing: Marketing is operating far below its capacity. Sales…
- Richardson Systems sells integrated bottling manufacturing systems that involve a conveyer, a labeler, a filler, anda capper. All of this equipment is sold separately by other vendors, and the fair values of the separate equipmentare as follows:Conveyer $20,000Labeler 10,000Filler 15,000Capper 5,000Total $50,000Richardson sells the integrated system for $45,000. Each of the components is shipped separately to the customerfor the customer to install.Required:1. Assume that each of the components can be used independently, even though Richardson sells them as anintegrated system. How much revenue should be allocated to each component?2. Now assume that the labeler, filler, and capper can’t be used in production without the conveyer, and that the conveyer is the last component installed. How much revenue should be recognized at the time the conveyer is installed?The Cycle Division of Culver Company has the following unit data related to its most recent cycle, the Roadster. Presently, the Cycle Division buys its body frames from an outside supplier. However Culver has another division, FrameBody, that makes body frames for other cycle companies. The Cycle Division believes that FrameBody's product is suitable for its new Roadster cycle. Presently, FrameBody sells its frames for $406 per frame. The variable cost for FrameBody is $306. The Cycle Division is willing to pay $314 to purchase the frames from FrameBody. (b) Assume that FrameBody does NOT have excess capacity and therefore would lose sales if the frames were sold to the Cycle Division. If the Cycle Division buys 1,160 frames from FrameBody, determine the following: (1) Effect on the income of the Cycle Division (2) Effect on the income of FrameBody (3) Effect on the income of CulverSlagle Corporation is a large manufacturing organization. Over the past several years, it has obtained an important component used in its production process exclusively from Harrison, Inc., a relatively small company in Topeka, Kansas. Harrison charges $90 per unit for this part: Variable cost per unit. . . . . . . . . . . $40Fixed cost assigned per unit. . . . . . . 30Markup. . . . . . . . . . . . . . . . . . . . . . . 20Total price. . . . . . . . . .. . . . . . . . . . . $90 In hope of reducing manufacturing costs, Slagle purchases all of Harrison’s outstanding common stock. This new subsidiary continues to sell merchandise to a number of outside customers as well as to Slagle. Thus, for internal reporting purposes, Slagle views Harrison as a separate profit center.A controversy has now arisen among company officials about the amount that Harrison should charge Slagle for each component. The administrator in charge of the subsidiary wants to continue the $90 price. He believes this…
- Quest Motors, Inc., operates as a decentralized multidivision company. The Vivo division of Quest Motors purchases most of its airbags from the airbag division. The airbag division’s incremental cost for manufacturing the airbags is $90 per unit. The airbag division is currently working at 80% of capacity. The current market price of the airbags is $125 per unit. Q. Using the general guideline presented in the chapter, what is the minimum price at which the airbag division would sell airbags to the Vivo division?ElegantWood is a manufacturer of modern style furniture and accessories. It considers two online suppliers to purchase its main material wood. Both online suppliers provide a similar price and shipping rate. Their service levels and lead times are also similar. However, they have a quite different charging structures. The first online supplier charges 5 percent commission on the market price of wood while the second online supplier requires a subscription fee of $10 million as an up-front payment for a 2-year period. The second online supplier also charges a commission of1 percent on the market price of wood. Even though ElegantWood spends about $150 million on the purchase of wood each year, this amount varies depending on utilization. Production manager thinks that the next year's utilization will potentially be high and keep the wood spending at $150 million level. However, he also predicts that there is a 25 percent chance that the spending will drop by 10 percent. For the second…The Showa Shoe Company has two divisions, Production and Marketing. Production manufactures Showa shoes, which it sells to both the Marketing Division and to other retailers (the latter under a different brand name). Marketing operates several small shoe stores in shopping centers. Marketing sells both Showa and other brands. Relevant facts for Production are as follows:Production is operating far below its capacity. Sales Price to Outsiders $28,50 per pair Variable Cost to Produce $ 18 per pair Fixed Costs $ 100,000 per pair The following data pertain to the sale of Showa shoes by Marketing: Marketing is operating far below its capacity. Sales Price $40 per Pair Variable Marketing Costs $ 1 per pair The company’s variable manufacturing and marketing costs are differential to this decision, while fixedmanufacturing and marketing costs are not.Required:a. What is the type of responsibility center for…
- Slagle Corporation is a large manufacturing organization. Over the past several years, it has obtained an important component used in its production process exclusively from Harrison, Inc., a relatively small company in Topeka, Kansas. Harrison charges $90 per unit for this part: Variable cost per unit $40 Fixed cost assigned per unit 30 Markup 20 Total price $90 In hopes of reducing manufacturing costs, Slagle purchases all of Harrison’s outstanding common stock. This new subsidiary continues to sell merchandise to a number of outside customers, as well as to Slagle. Thus, for internal reporting purposes, Slagle views Harrison as a separate profit center. A controversy has now arisen among company officials about the amount that Harrison should charge Slagle for each component. The administrator in charge of the subsidiary wants to continue the $90 price. He believes this figure best reflects the division’s profitability: “If we are to be judged by our…Slagle Corporation is a large manufacturing organization. Over the past several years, it has obtained an important component used in its production process exclusively from Harrison, Inc., a relatively small company in Topeka, Kansas. Harrison charges $90 per unit for this part: Variable cost per unit $40 Fixed cost assigned per unit 30 Markup 20 Total price $90 In hopes of reducing manufacturing costs, Slagle purchases all of Harrison’s outstanding common stock. This new subsidiary continues to sell merchandise to a number of outside customers, as well as to Slagle. Thus, for internal reporting purposes, Slagle views Harrison as a separate profit center. A controversy has now arisen among company officials about the amount that Harrison should charge Slagle for each component. The administrator in charge of the subsidiary wants to continue the $90 price. He believes this figure best reflects the division’s profitability: “If we are to be judged by our profits, why should…Jamison Textiles has two division. One division makes bolts of cloth, and the other division makes t-shirts. The cloth division makes 2 square yards of cloth for P0.26 but sells the cloth to customers for P0.43. The t-shit division can make t-shirts for P0.59 plus the cost of the 2 square yards of cloth and sells t-shirts for P7.00. The company can purchase cloth from a different company for PO.45 per 2 square yards. If Jamison Textiles has no excess capacity and wants to use a negotiated transfer price to sell cloth from the cloth division to the t-shirt division. What should be the minimum and maximum transfer costs?