What should be the minimum and maximum transfer costs?
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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?
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- Reubens Deli currently makes rolls for deli sandwiches it produces. It uses 30,000 rolls annually in the production of deli sandwiches. The costs to make the rolls are: A potential supplier has offered to sell Reuben the rolls for $0.90 each. If the rolls are purchased, 30% of the fixed overhead could be avoided, If Reuben accepts the offer, what will the effect on profit be?Andalus Furniture Company has two manufacturing plants, one at Aynor and another at Spartanburg. The cost in dollars of producing a kitchen chair at each of the two plants is given here. The cost of producing Q1 chairs at Aynor is: 75Q1+5Q12+100 and the cost of producing Q2 kitchen chairs at Spartanburg is: 25Q2+2.5Q22+150. Andalus needs to manufacture a total of 40 kitchen chairs to meet an order just received. How many chairs should be made at Aynor, and how many should be made at Spartanburg in order to minimize total production cost?Many different businesses employ markup on cost to arrive at a price. For each of the following situations, explain what the markup covers and why it is the amount that it is. a. Department stores have a markup of 100 percent of purchase cost. b. Jewelry stores charge anywhere from 100 percent to 300 percent of the cost of the jewelry. (The 300 percent markup is referred to as keystone.) c. Johnson Construction Company charges 12 percent on direct materials, direct labor, and subcontracting costs. d. Hamilton Auto Repair charges customers for direct materials and direct labor. Customers are charged 45 per direct labor hour worked on their job; however, the employees actually cost Hamilton 15 per hour.
- Polaris Inc. manufactures two types of metal stampings for the automobile industry: door handles and trim kits. Fixed cost equals 146,000. Each door handle sells for 12 and has variable cost of 9; each trim kit sells for 8 and has variable cost of 5. Required: 1. What are the contribution margin per unit and the contribution margin ratio for door handles and for trim kits? 2. If Polaris sells 20,000 door handles and 40,000 trim kits, what is the operating income? 3. How many door handles and how many trim kits must be sold for Polaris to break even? 4. CONCEPTUAL CONNECTION Assume that Polaris has the opportunity to rearrange its plant to produce only trim kits. If this is done, fixed costs will decrease by 35,000, and 70,000 trim kits can be produced and sold. Is this a good idea? Explain.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…
- AMA Corporation has two products, x and y. The profit contribution of x is P50 per unit and the profit contribution of y is P25 per unit. The company has three machine centers that are available for 20, 24, and 18 hours respectively. Product x needs 1 hour in machine center 1, 3 hours in machine center 2, and 3 hours in machine center 3. Product y needs 2, 2, and 1 hour in machine centers 1, 2, and 3 respectively. The company can sell all it can produce. Find the number of units of x and y to produce to maximize the profit contributionThe 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 CulverBostonian 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…
- Tots-To-Go, Inc., has two divisions—the seat division and the stroller division. The seat division supplies the seat frames used by the stroller division to make its strollers. The stroller division produces approximately 10,000 strollers for young children annually. Thus, the stroller division receives 10,000 seat frames annually from the seat division. The market price of these seat frames is $120. The total variable cost of the seat frames is $95 per unit. The market price of the strollers is $300. The unit variable cost of each stroller excluding the cost of the seat frame is $75. The seat division is currently operating at full capacity, producing 20,000 seat frames per year (10,000 of which are transferred to the stroller division). The demand for seat frames is so great that all 20,000 units could be sold to outside customers if the stroller division acquired seat frames from elsewhere. The seat division uses the full market price of $120 as the transfer price charged to the…The Stackpole Company retails two products, a standard and deluxe version of a luggage carrier.The standard carrier sells for $38, has variable costs of $23, and direct fixed costs of $800,000. The deluxe model sells for $56, has variable costs of $34, and direct fixed costs of $1,500,000. The company has common fixed costs of $250,000. The anticipated sales mix for the company is 4:1 or 80/20. The actual level of sales units currently is 250,000 (total for both products) and your target income is $1,250,000. You expect sales to rise 10% in the coming year. Directions: You have been hired to build a CVP model to help the company understand the impact of business conditions on operating income. Your model should include breakeven in units with a pro forma income statement, units sales for a target income of $1,250,000 with a pro forma income statement, an income statement reflecting actual current sales, margin of safety in dollars and %, and degree of operating leverage. Your model…Justine Corporation currently makes rolls for deli sandwiches it produces. It uses 40,000 rolls annually in the production of deli sandwiches. The costs to make the rolls are given below: Materials $0.24 per roll Labor $0.40 per roll Variable overhead $0.16 per roll Fixed overhead $0.20 per roll A potential supplier has offered to sell Justine the rolls for $0.95 each. If the rolls are purchased, 20% of the fixed overhead could be avoided. If Justine accepts the offer, what will the effect on profit be? $4,400 increase in profit $1,200 increase in profit $3,300 increase in profit $3,300 decrease in profit $4,400 decrease in profit
