(a)
Concept introduction:
Transfer price:
Transfer price is the price charged by one division to another division of the same company for transfer of goods or services.
The minimum and maximum transfer price.
(b)
Concept introduction:
Transfer price:
Transfer price is the price charged by one division to another division of the same company for transfer of goods or services.
To calculate:
T company’s total benefit of having the widgets transferred between these divisions.
(c)
Concept introduction:
Transfer price:
Transfer price is the price charged by one division to another division of the same company for transfer of goods or services.
The profit of division A and saving of division B, if transfer price is set at
(d)
Concept introduction:
Transfer price:
Transfer price is the price charged by one division to another division of the same company for transfer of goods or services.
The profit of division A and saving of division B, if transfer price is set at
(e)
Concept introduction:
Transfer price:
Transfer price is the price charged by one division to another division of the same company for transfer of goods or services.
The two division equally split the profit from the transfer.
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Connect 1-Semester Access Card for Managerial Accounting
- Aldovar Company produces a variety of chemicals. One division makes reagents for laboratories. The divisions projected income statement for the coming year is: Required: 1. Compute the contribution margin per unit, and calculate the break-even point in units. (Note: Round answer to the nearest unit.) Calculate the contribution margin ratio and use it to calculate the break-even sales revenue. (Note: Round contribution margin ratio to four decimal places, and round the break-even sales revenue to the nearest dollar.) 2. The divisional manager has decided to increase the advertising budget by 250,000. This will increase sales revenues by 1 million. By how much will operating income increase or decrease as a result of this action? 3. Suppose sales revenues exceed the estimated amount on the income statement by 1,500,000. Without preparing a new income statement, by how much are profits underestimated? 4. Compute the margin of safety based on the original income statement. 5. Compute the degree of operating leverage based on the original income statement. If sales revenues are 8% greater than expected, what is the percentage increase in operating income? (Note: Round operating leverage to two decimal places.)arrow_forwardKatayama Company produces a variety of products. One division makes neoprene wetsuits. The divisions projected income statement for the coming year is as follows: Required: 1. Compute the contribution margin per unit, and calculate the break-even point in units. Repeat, using the contribution margin ratio. 2. The divisional manager has decided to increase the advertising budget by 140,000 and cut the average selling price to 200. These actions will increase sales revenues by 1 million. Will this improve the divisions financial situation? Prepare a new income statement to support your answer. 3. Suppose sales revenues exceed the estimated amount on the income statement by 612,000. Without preparing a new income statement, determine by how much profits are underestimated. 4. How many units must be sold to earn an after-tax profit of 1.254 million? Assume a tax rate of 34 percent. (Round your answer up to the next whole unit.) 5. Compute the margin of safety in dollars based on the given income statement. 6. Compute the operating leverage based on the given income statement. (Round to three significant digits.) If sales revenues are 20 percent greater than expected, what is the percentage increase in profits?arrow_forwardCalculating Transfer Price Teslum Inc. has a number of divisions, including the Machina Division, a producer of high-end espresso makers, and the Java Division, a chain of coffee shops. Machina Division produces the EXP-100 model espresso maker that can be used by Java Division to create various coffee drinks. The market price of the EXP-100 model is 950, and the full cost of the EXP-100 model is 475. Required: 1. If Teslum has a transfer pricing policy that requires transfer at full cost, what will the transfer price be? Do you suppose that Machina and Java divisions will choose to transfer at that price? 2. If Teslum has a transfer pricing policy that requires transfer at market price, what would the transfer price be? Do you suppose that Machina and Java divisions would choose to transfer at that price? 3. Now suppose that Teslum allows negotiated transfer pricing and that Machina Division can avoid 135 of selling expense by selling to Java Division. Which division sets the minimum transfer price, and what is it? Which division sets the maximum transfer price, and what is it? Do you suppose that Machina and Java divisions would choose to transfer somewhere in the bargaining range?arrow_forward
- Morris Industries manufactures and sells three products (AA, BB, and CC). The sales price and unit variable cost for the three products are as follows: Their sales mix s reflected as a ratio of 5:3:2. Annual fixed costs shared by the three products are $25,000 per year. What are total variable costs for Morris with their current product mix? Calculate the number of units of each product that will need to be sold in order for Morris to break even. What is their break-even point in sales dollars? Using an income statement format, prove that this is the break-even point.arrow_forwardCost-Volume-Profit, Margin of Safety Victoria Company produces a single product. Last years income statement is as follows: Required: 1. Compute the break-even point in units and sales dollars calculated using the break-even units. 2. What was the margin of safety for Victoria last year in sales dollars? 3. Suppose that Victoria is considering an investment in new technology that will increase fixed cost by 250,000 per year but will lower variable costs to 45% of sales. Units sold will remain unchanged. Prepare a budgeted income statement assuming that Victoria makes this investment. What is the new break-even point in sales dollars, assuming that the investment is made?arrow_forwardContribution margin, break-even sales, cost-volume-profit chart, margin of safety, and operating leverage Belmain Co. expects to maintain the same inventories at the end of 20Y7 as at the beginning of the year. The total of all production costs for the year is therefore assumed to be equal to the cost of goods sold. With this in mind, the various department heads were asked to submit estimates of the costs for their departments during the year. A summary report of these estimates is as follows: It is expected that 12,000 units will be sold at a price of 240 a unit. Maximum sales within the relevant range are 18,000 units. Instructions 1. Prepare an estimated income statement for 20Y7. 2. What is the expected contribution margin ratio? 3. Determine the break-even sales in units and dollars. 4. Construct a cost-volume-profit chart indicating the break-even sales. 5. What is the expected margin of safety in dollars and as a percentage of sales? (Round to one decimal place.) 6. Determine the operating leverage.arrow_forward
- Contribution Margin Ratio, Break-Even Sales, Operating Leverage Elgart Company produces plastic mailboxes. The projected income statement for the coming year follows: Required: 1. Compute the contribution margin ratio for the mailboxes. 2. How much revenue must Elgart earn in order to break even? 3. What is the effect on the contribution margin ratio if the unit selling price and unit variable cost each increase by 15%? 4. CONCEPTUAL CONNECTION Suppose that management has decided to give a 4% commission on all sales. The projected income statement does not reflect this commission. Recompute the contribution margin ratio, assuming that the commission will be paid. What effect does this have on the break-even point? 5. CONCEPTUAL CONNECTION If the commission is paid as described in Requirement 4, management expects sales revenues to increase by 80,000. How will this affect operating leverage? Is it a sound decision to implement the commission? Support your answer with appropriate computations.arrow_forwardMorrill Company produces two different types of gauges: a density gauge and a thickness gauge. The segmented income statement for a typical quarter follows. Includes depreciation. The density gauge uses a subassembly that is purchased from an external supplier for 25 per unit. Each quarter, 2,000 subassemblies are purchased. All units produced are sold, and there are no ending inventories of subassemblies. Morrill is considering making the subassembly rather than buying it. Unit-level variable manufacturing costs are as follows: No significant non-unit-level costs are incurred. Morrill is considering two alternatives to supply the productive capacity for the subassembly. 1. Lease the needed space and equipment at a cost of 27,000 per quarter for the space and 10,000 per quarter for a supervisor. There are no other fixed expenses. 2. Drop the thickness gauge. The equipment could be adapted with virtually no cost and the existing space utilized to produce the subassembly. The direct fixed expenses, including supervision, would be 38,000, 8,000 of which is depreciation on equipment. If the thickness gauge is dropped, sales of the density gauge will not be affected. Required: 1. Should Morrill Company make or buy the subassembly? If it makes the subassembly, which alternative should be chosen? Explain and provide supporting computations. 2. Suppose that dropping the thickness gauge will decrease sales of the density gauge by 10 percent. What effect does this have on the decision? 3. Assume that dropping the thickness gauge decreases sales of the density gauge by 10 percent and that 2,800 subassemblies are required per quarter. As before, assume that there are no ending inventories of subassemblies and that all units produced are sold. Assume also that the per-unit sales price and variable costs are the same as in Requirement 1. Include the leasing alternative in your consideration. Now, what is the correct decision?arrow_forward
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