Spartac Corp has two divisions: Yekaterinburg Division and Sochi Division. The Yekaterinburg Division is currently selling MK-19 products to giant cookie dough millers for USD 3,100 per unit. The variable costs for producing the MK-I9 product are USD 2,000; while demand for this product currently exceeds the production capacity of the Yekaterinburg Division. Apart from this situation, Spartac Corp is considering other uses of MK products. 19, namely as a component of the MBC-67 Blender / Chopper Machine which will be produced by the Sochi Division. The MBC-67 Blender / Chopper machine has a selling price of USD 5,600 and requires additional variable production costs of USD 2,680. The transfer price between the two divisions has been set at USD 3,000. The management of Spartac Corp hopes to start producing and marketing MBC-67 products. However, production cannot run if the transfer of MK-19 products from the Yekaterinburg Division to the Sochi Division does not occur, given the high demand and difficulty finding MK products 19 on the market. The Yekaterinburg Division and Sochi Division are currently in the process of bearing the financial problems experienced from the last few periods, and will not be able to bear future losses. Spartac Corp uses responsibility accounting and ROI as performance measures and the basis for giving bonuses to division managers. Requested: If you were the Yekaterinburg Division Manager, how would you react to Spartac Corp management's decision to transfer MK-19 products to the Sochi Division? Prepare a calculation on which to base your answer. If you were the Sochi Division Manager, how would you react to the stipulated transfer price of USD 3,000? Prepare a calculation on which to base your answer. From the perspective of the contribution margin, is it better for Spartac Corp to (1) sell MK-19 products to external parties or (2) transferring from the Yekaterinburg Division to Sochi Division? Include the calculation.

Spartac Corp has two divisions: Yekaterinburg Division and Sochi Division. The Yekaterinburg Division is currently selling MK-19 products to giant cookie dough millers for USD 3,100 per unit. The variable costs for producing the MK-I9 product are USD 2,000; while demand for this product currently exceeds the production capacity of the Yekaterinburg Division. Apart from this situation, Spartac Corp is considering other uses of MK products. 19, namely as a component of the MBC-67 Blender / Chopper Machine which will be produced by the Sochi Division. The MBC-67 Blender / Chopper machine has a selling price of USD 5,600 and requires additional variable production costs of USD 2,680. The transfer price between the two divisions has been set at USD 3,000. The management of Spartac Corp hopes to start producing and marketing MBC-67 products. However, production cannot run if the transfer of MK-19 products from the Yekaterinburg Division to the Sochi Division does not occur, given the high demand and difficulty finding MK products 19 on the market. The Yekaterinburg Division and Sochi Division are currently in the process of bearing the financial problems experienced from the last few periods, and will not be able to bear future losses. Spartac Corp uses responsibility accounting and ROI as performance measures and the basis for giving bonuses to division managers. Requested: If you were the Yekaterinburg Division Manager, how would you react to Spartac Corp management's decision to transfer MK-19 products to the Sochi Division? Prepare a calculation on which to base your answer. If you were the Sochi Division Manager, how would you react to the stipulated transfer price of USD 3,000? Prepare a calculation on which to base your answer. From the perspective of the contribution margin, is it better for Spartac Corp to (1) sell MK-19 products to external parties or (2) transferring from the Yekaterinburg Division to Sochi Division? Include the calculation.

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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Apart from this situation, Spartac Corp is considering other uses of MK products. 19, namely as a component of the MBC-67 Blender / Chopper Machine which will be produced by the Sochi Division. The MBC-67 Blender / Chopper machine has a selling price of USD 5,600 and requires additional variable production costs of USD 2,680. The transfer price between the two divisions has been set at USD 3,000.

The management of Spartac Corp hopes to start producing and marketing MBC-67 products. However, production cannot run if the transfer of MK-19 products from the Yekaterinburg Division to the Sochi Division does not occur, given the high demand and difficulty finding MK products 19 on the market. The Yekaterinburg Division and Sochi Division are currently in the process of bearing the financial problems experienced from the last few periods, and will not be able to bear future losses. Spartac Corp uses responsibility accounting and ROI as performance measures and the basis for giving bonuses to division managers.

Requested:

If you were the Yekaterinburg Division Manager, how would you react to Spartac Corp management's decision to transfer MK-19 products to the Sochi Division? Prepare a calculation on which to base your answer.
If you were the Sochi Division Manager, how would you react to the stipulated transfer price of USD 3,000? Prepare a calculation on which to base your answer.
From the perspective of the contribution margin, is it better for Spartac Corp to (1) sell MK-19 products to external parties or (2) transferring from the Yekaterinburg Division to Sochi Division? Include the calculation.

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