1.
Transfer price: Transfer price is the price at which goods and services are transferred between divisions or centres in an organization. The price charged to transfer goods and services is recorded as an expense in the buying division and revenue in the selling division.
- The lowest transfer price acceptable by A Division.
- The highest transfer price acceptable by B Division.
- The range of acceptable transfer prices. Also, determine whether the managers probably agree to a transfer.
2.
Transfer price: Transfer price is the price at which goods and services are transferred between divisions or centres in an organization. The price charged to transfer goods and services is recorded as an expense in the buying division and revenue in the selling division.
- The lowest transfer price acceptable by A Division.
- The highest transfer price acceptable by B Division.
- The range of acceptable transfer prices. Also, determine whether there is any disagreement between the managers related to the transfer price.
- The loss in potential profits of the company as a whole.
3.
Transfer price: Transfer price is the price at which goods and services are transferred between divisions or centres in an organization. The price charged to transfer goods and services is recorded as an expense in the buying division and revenue in the selling division.
- The lowest transfer price acceptable by A Division.
- The highest transfer price acceptable by B Division.
- The range of acceptable transfer prices. Also, determine whether the managers agree to transfer.
- Whether the return on investment of the A division increases, decreases, or remains unchanged.
4.
Transfer price: Transfer price is the price at which goods and services are transferred between divisions or centres in an organization. The price charged to transfer goods and services is recorded as an expense in the buying division and revenue in the selling division.
The lowest transfer price acceptable by A Division.
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MANAGERIAL ACCOUNTING
- The Fruity Bakers specialize in making delicious cakes. Their trademark fruit cake is made in Division X (the supplying division) and sold to external customers for them to decorate, or it can be enjoyed plain. It is also transferred to Division Y (the receiving division) where it is iced and decorated to be sold as a luxury wedding cake. Fruity Bakers are currently trying to decide what the optimum price to sell the cakes from Division X to Y should be in order to motivate the managers of both divisions. The following data shows the costs incurred by Division X to make a fruit cake and by Division Y to ice and decorate the wedding cake: $/unit Division X Variable costs 22 Fixed overhead 9 31 Division Y Variable costs 33 Fixed overhead 8. 41 Plain fruit cakes can be sold and purchased externally for $35. Wedding cakes can be sold for $80. Instructions: 1. Should the company make the fruit cakes internally or buy them in? 2. What non-financial factors should also be taken into…arrow_forwardQuestion 3 Spark Ltd has two divisions, assembly and electrical. The assembly division transfers partially completed components to the electrical division at a predetermined transfer price. The assembly division’s standard variable production cost per unit is $550. This division has spare capacity, and it could sell all its components to outside buyers at $680 per unit in a perfectly competitive market. Required: Determine a transfer price using the general rule. How would the transfer price change if the assembly division had no spare capacity? What transfer price would you recommend if there was no outside market for the transferred component and the assembly division had spare capacity? How negotiation between the supplying and buying units may be used to set transfer prices. How does this relate to the general transfer pricing rule?arrow_forwardExercise 11-13 (Algo) Transfer Pricing Situations [LO11-3] Skip to question [The following information applies to the questions displayed below.] In each of the cases below, assume Division X has a product that can be sold either to outside customers or to Division Y of the same company for use in its production process. The managers of the divisions are evaluated based on their divisional profits. Case A B Division X: Capacity in units 100,000 95,000 Number of units being sold to outside customers 100,000 74,000 Selling price per unit to outside customers $ 55 $ 30 Variable costs per unit $ 26 $ 14 Fixed costs per unit (based on capacity) $ 7 $ 5 Division Y: Number of units needed for production 21,000 21,000 Purchase price per unit now being paid to an outside supplier $ 50 $ 28 Exercise 11-13 (Algo) Part 1 Required: 1. Refer to the data in case A above. Assume in this case that $3 per unit in variable selling costs can be avoided on…arrow_forward
- Exercise 15-34 (Algo) Evaluate Transfer Pricing System: Negotiated Rates (LO 15-2, 3) Tops Corporation is organized into two divisions, Manufacturing and Marketing. Both divisions are considered to be profit centers and the two division managers are evaluated in large part on divisional income. The company makes a single product. It is fabricated in Manufacturing and then packaged and sold in Marketing. There is no intermediate market for the product. The monthly income statements, in thousands of dollars, for the two divisions follow. Production and sales amounted to 15,000 units. Revenues Variable costs Contribution margin Fixed costs Manufacturing $4,500 3,900 $. Marketing $15, 000 6,700 $ 8,300 600 300 800 Divisional profit $. 300 $ 7,500 Assume there is no speclal order pending. Required: a. What transfer price would you recommend for Tops Corporation? b. Using your recommended transfer price, what will be the income of the two divisions, assuming monthly production and sales of…arrow_forwardCheck m A division can sell externally for $73 per unit. Its variable manufacturing costs are $42 per unit, and its variable marketing costs are $20 per unit. What is the optimal transfer price for transferring internally, assuming the division is operating at capacity? to search Multiple Choice O $20 $42 $62 $73 I Hi 37°F Cloudy ^4arrow_forwardIf the Vega Division sells wheels to the Walsh Division, Vega can avoid P2 per wheel in sales commissions. An outside supplier has offered to supply wheels to the Walsh Division for P41 each. Suppose that the Vega Division has ample idle capacity so that transfers to the Walsh Division would not cut into its sales to outside customers. What should be the lowest acceptable transfer price from the perspective of the Vega Division? P22 P35 P45 None of the choicesarrow_forward
- QUESTION 2 Ayittey Ltd is an organization with two divisions: A and B, each with its own cost and revenue streams. Each of the two divisions is classified as Investment center. The company’s cost of capital is 9%. Historically, investment decisions have been made by calculating the return on investment (ROI). A new manager who has recently been appointed in division A has argued that using residual income (RI) to make investment decisions would result in ‘better goal congruence’ throughout the company. The data below shows the current position of the division as at the end of 31 December, 2019: Details of Projects Project A Project B Capital required GH¢ 82.8 million GH¢ 40.6 million Sales generated GH¢44.6 million GH¢ 21.8 million Net Profit margin 18% 25% The company is seeking to maximize shareholders wealth. Assuming that, Division A acquires a more efficient asset at GH¢17 million and Division B sold one of its assets with written down value of GH¢21 million, and profits are…arrow_forward12 & 14 Recap Saved Help Save Required information [The following information applies to the questions displayed below.] In each of the cases below, assume Division X has a product that can be sold either to outside customers or to Division Y of the same company for use in its production process. The managers of the divisions are evaluated based on their divisional profits. Case Division X: Capacity in units Number of units being sold to outside customers Selling price per unit to outside customers Variable costs per unit Fixed costs per unit (based on capacity) Division Y: 103,000 103,000 95,000 77,000 59 $ 29 $ 10 $ 29 %2$ 15 5 Number of units needed for production Purchase price per unit now being paid to an outside supplier 18,000 18,000 53 $ 30 Required: 2. Refer to the data in case B above. In this case, there will be no savings in variable selling costs on intracompany sales. a. What is the lowest acceptable transfer price from the perspective of the selling division? b. What is…arrow_forwardCase 1: ROI You are comparing the performance of two (2) separate divisions, segments A and B, using ROI Analysis. A в P100,000.00 P500,000.00 30,000.00 Sales Operating Expenses 300,000.00 Net Operating income 70,000.00 200,000.00 Average Operating Assets 10,000.00 40,000.00 Required: Using ROI Analysis, which segment is performing better? To answer this question, you need to: 1. Compute the ROi of each segment and 2. Compute the components of ROI of each segmentarrow_forward
- 1. “Transfer pricing is confined to profit centres”. Do you agree? Why? 2. Give three general methods for determining transfer prices. 3. What properties should transfer-pricing systems have? 4. “All transfer-pricing methods give the same division operating income.” Do you agree? Explain. 5. Under what conditions is a market-based transfer price optimal? 6. What is one potential limitation of full cost-based transfer pricing?arrow_forwardProblem 2 A firm produces two products, the demands for which are independent. Each of the products has zero marginal cost. The firm faces four consumers with the following reservation prices: Alyona Betty Celine Delilah Good 1 30 40 80 70 Good 2 140 100 60 60 Bundle 170 140 140 130 (b) Analyze whether or not the firm can maximize its profit by using mixed bundling. If so, what is the profit-maximizing pricing strategy? If not, briefly explain why. Jarrow_forwardCalculating Transfer Price Burt Inc. has a number of divisions, including the Indian Division, a producer of liquid pumps, and Maple Division, a manufacturer of boat engines. Indian Division produces the h20-model pump that can be used by Maple Division in the production of motors that regulate the raising and lowering of the boat engir stern drive unit. The market price of the h20-model is $724, and the full cost of the h20-model is $540. Required: 1. If Burt has a transfer pricing policy that requires transfer at full cost: What will the transfer price be? $ Do you suppose that Indian and Maple divisions will choose to transfer at that price? Maple Division Indian Division 2. If Burt has a transfer pricing policy that requires transfer at market price: What would the transfer price be? $ Do you suppose that Indian and Maple divisions would choose to transfer at that price? Maple Division Indian Division 3. Now suppose that Burt allows negotiated transfer pricing and that Indian…arrow_forward
- Cornerstones of Cost Management (Cornerstones Ser...AccountingISBN:9781305970663Author:Don R. Hansen, Maryanne M. MowenPublisher:Cengage Learning