1.
Introduction: Net operating income (NOI) is a measure of profitability wherein expenses are deducted from sales. The interest and taxes are not taken into consideration while computing NOI. It reveals the company's income from core activities.
The net operating income earned by each division and company as a whole.
2.
Introduction: Transfer price is the price charged by one department of a company to another department when goods or services are transferred. For example, Department A and Department B are the two departments of Company F. Department A produces Raw Material X, which is an input for Department B's final product. If Departments A and B agree to an inter-departmental transfer of Raw Material X, it will take place at a transfer price agreed upon by the managers of both departments.
To explain: Whether Division A should sell additional 1,000 units to Division B or not and provide its reasoning.
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MANAGERIAL ACCOUNTING (LL)
- Exercise 15-32 (Algo) International Transfer Prices (LO 15-4) San Jose Company operates a Manufacturing Division and an Assembly Division. Both divisions are evaluated as profit centers. Assembly buys components from Manufacturing and assembles them for sale. Manufacturing sells many components to third parties in addition to Assembly. Selected data from the two operations follow. Manufacturing Assembly Capacity (units) 415,000 215,000 Sales pricea $ 430 $ 1,375 Variable costsb $ 235 $ 510 Fixed costs $ 40,150,000 $ 24,150,000 a For Manufacturing, this is the price to third parties. b For Assembly, this does not include the transfer price paid to Manufacturing. Suppose Manufacturing is located in Country A with a tax rate of 60 percent and Assembly in Country B with a tax rate of 40 percent. All other facts remain the same. Required: a. Current production levels in Manufacturing are 215,000 units. Assembly requests an additional…arrow_forwardQS 22-19 (Algo) Determining transfer prices with excess capacity LO C1 The Windshield division of Jaguar Company makes windshields for use in its Assembly division. The Windshield division incurs variable costs of $296 per windshield and has capacity to make 590,000 windshields per year. The market price is $520 per windshield. The Windshield division incurs total fixed costs of $3,750,000 per year. If the Windshield division has excess capacity, what is the range of possible transfer prices that could be used on transfers between the Windshield and Assembly divisions? Transfer price per windshield will be at least but not more than Dravarrow_forwardExercise 15-29 (Algo) Evaluate Transfer Pricing System (LO 15-2) Southfield Division offers its product to outside markets for $124. It incurs variable costs of $49 per unit and fixed costs of $143,500 per month based on monthly production of 22,900 units. Northfield Division can acquire the product from an alternate supplier for $129 per unit or from Southwest Division for a transfer price of $124 plus $6 per unit in transportation costs. Required: a. What are the costs and benefits of the alternatives available to Southfield Division and Northfield Division with respect to the transfer of Southfield Division's product? Assume that Southfield Division can market all that it can produce. b. How would your answer change if Southfield Division had idle capacity sufficient to cover all of Northfield Division's needs? a. Net benefit b. Net benefit per unit per unitarrow_forward
- Week 8Spark Ltd has two divisions, assembly and electrical. The assembly division transfers partiallycompleted components to the electrical division at a predetermined transfer price. The assemblydivision’s standard variable production cost per unit is $550. This division has spare capacity, and itcould sell all its components to outside buyers at $680 per unit in a perfectly competitive market.Required:-What transfer price would you recommend if there was no outside market for the transferred component and the assembly division had spare capacity? - Explain how negotiation between the supplying and buying units may be used to set transferprices. How does this relate to the general transfer pricing rule?arrow_forward11:51 dent question Show Transcribed Text Week 4 Assignment Transfer Data The Better Chair Company manufactures high-end chairs in alpha division in a country with a 35% income tax rate and transfers these chairs to beta division in a country with a 40% income tax. An import duty of 10% of the transfer price is paid on all imported products. The import duty is not deductible in computing taxable income. The fixed cost for a high-end chair is $300 and the variable cost is $650, which brings the full cost (i.e., total cost) for each chair to $950. They are sold by beta division for $1050. The tax authorities in both countries allow firms to use either variable cost or full cost as the transfer price. Alpha Division Taxes: Transfer Price Less (subtract) Cost Taxable Income Taxes (or refund) Beta Division Taxes: Sales Price Less (subtract) Transfer Price Taxable Income Income Taxes Import Duty Taxes (or refund) Total Taxes Show Transcribed Text = رام Full Cost 0 0 4G 100.00 vop KB/S LTE 4…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 15-27 (Algo) Evaluate Transfer Pricing System (LO 15-2) Lola Metals has two decentralized divisions, Stamping and Finishing. Finishing always has purchased certain units from Stamping at $48 per unit. Stamping plans to raise the price to $60 per unit, the price it receives from outside customers. As a result, Finishing is considering buying these units from outside suppliers for $48 per unit. Corporate policy allows division managers to choose both customers and suppliers regardless of the transfer price. Stamping's costs follow: Variable costs per unit Annual fixed costs Annual production of these units sold to Alpha Required: a. If Finishing buys from an outside supplier, the facilities that Stamping uses to produce these units will remain idle. What will be the impact on corporate profits if Lola Metals enforces a transfer price of $60 per unit between Stamping and Finishing? b. Suppose Lola Metals enforces a transfer price of $48 and insists that Stamping sell to Finishing…arrow_forwardExercise 11-3 (Algo) Transfer Pricing Basics [LO11-3] Sako Company’s Audio Division produces a speaker that is used by manufacturers of various audio products. Sales and cost data on the speaker follow: Selling price per unit on the intermediate market $ 120 Variable costs per unit $ 102 Fixed costs per unit (based on capacity) $ 8 Capacity in units 25,000 Sako Company has a Hi-Fi Division that could use this speaker in one of its products. The Hi-Fi Division will need 5,000 speakers per year. It has received a quote of $117 per speaker from another manufacturer. Sako Company evaluates division managers on the basis of divisional profits. Required: 1. Assume the Audio Division sells only 20,000 speakers per year to outside customers. a. From the standpoint of the Audio Division, what is the lowest acceptable transfer price for speakers sold to the Hi-Fi Division? b. From the standpoint of the Hi-Fi Division, what is the highest acceptable transfer price for speakers…arrow_forwardExercise 11-3 (Algo) Transfer Pricing Basics [LO11-3] Sako Company’s Audio Division produces a speaker that is used by manufacturers of various audio products. Sales and cost data on the speaker follow: Selling price per unit on the intermediate market $ 120 Variable costs per unit $ 102 Fixed costs per unit (based on capacity) $ 8 Capacity in units 25,000 Sako Company has a Hi-Fi Division that could use this speaker in one of its products. The Hi-Fi Division will need 5,000 speakers per year. It has received a quote of $117 per speaker from another manufacturer. Sako Company evaluates division managers on the basis of divisional profits. Required: 1. Assume the Audio Division sells only 20,000 speakers per year to outside customers. a. From the standpoint of the Audio Division, what is the lowest acceptable transfer price for speakers sold to the Hi-Fi Division? b. From the standpoint of the Hi-Fi Division, what is the highest acceptable transfer price for speakers…arrow_forward
- AIP 6.11 Transfer Price LO 6 UK Pumps is a multi-divisional firm that manufactures and installs chemical piping and pump systems. The Valve Division makes a single standardized valve. Two divisions, the Valve Division and the Installation Division, are currently involved in a transfer-pricing dispute. Last year, half of the Valve Division's output was sold to the Installation Division for £40 and the remaining half was sold to outsiders for £60. The existing transfer price of £40 per pump has been set through a negotiation process between the two divisions and also with the involvement of senior management. The Installation Division has received a bid from an outside valve manufacturer to supply it with an equivalent valve for £35 each. The manager of the Valve Division has argued that if it is forced to meet the external price of £35, it will lose money on internal sales. The operating data for last year for the Valve Division are as follows: Valve Division Operating Statement Last…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_forwardCase 11-26 (Algo) Transfer Pricing; Divisional Performance [LO11-3] Weller Industries has six divisions. Its Electrical Division (which is operating at capacity) produces a variety of electrical items, including an X52 electrical fitting that it sells to regular customers for $8.00 each. The fitting has a variable manufacturing cost of $4.47. The company's Brake Division wants the Electrical Division to provide a large quantity of X52 fittings for $6.00 each. The Brake Division, which is operating at 50% of capacity, will put the fitting into a brake unit it produces and sells to an airplane manufacturer. The cost of the brake unit being built by the Brake Division follows: Purchased parts (from outside vendors) Electrical fitting X52 Other variable costs Fixed overhead and administration Total cost per brake unit $ 22.80 6.00 14.21 8.20 $ 51.21 Although the Brake Division's proposed price of $6.00 for the X52 fitting is well below the Electrical Division's regular price of $8.00, the…arrow_forward
- Survey of Accounting (Accounting I)AccountingISBN:9781305961883Author:Carl WarrenPublisher:Cengage Learning