What should the transfer price be and why?
Q: What is par value?
A: Stockholders’ equity is the measure of assets staying in a business after the sum total of the…
Q: Under what conditions is a market-based transfer price most likely to be used?
A: Transfer Pricing: It is termed as the cost which is charged by the one department of the company…
Q: What are the calculation formulas for transfer pricing?
A: There are many methods for determining the transfer price. Most businesses actually set the transfer…
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A: Goodwill is defined as the difference between the purchase price and the fair value of the defined…
Q: What is market model?
A: A market model is a numerical portrayal of the exchanges among different members, financial powers,…
Q: Define trade-off theory
A: Answer: The trade-off theory suggests a leveraged company’s valuation is equal to the value of an…
Q: What is market multiple method?
A: The market multiple methods is a hypothesis of valuation, in view of the reason that comparative…
Q: What is the total investment approach?
A: Total Investment Approach: In the Total Investment Approach, there is a risk-return tradeoff in the…
Q: What are economic resources?
A: Economic resources: Assets or services of an organization carrying some economic value which can be…
Q: What is the transaction price? What additional factorsrelated to the transaction price must be…
A: The transaction price is an amount that is received by the company from the transfer of goods or…
Q: Describe Trade-Off theory.
A: Trade-Off theory suggests that there is an optimal capital structure that maximizes the value of the…
Q: What is intrinsic value or price?
A: Intrinsic value: Intrinsic value denotes to an investor's view of the intrinsic worth of an asset,…
Q: Define Purchase return.
A: Financial accounting is the process of recording, summarizing, and reporting all the transactions in…
Q: Define net realization value?
A: Net realizable value means the amount that could be received after deducted all incidental expenses…
Q: What are funds transfer pricing?
A: Funds transfer pricing (FTP): It is a method used to estimate how financing/funding improves a…
Q: What is offer price?
A: Bid price is the maximum price which the buyer is willing to pay to purchase. In other words, it…
Q: Under what conditions is a market-based transfer price optimal?
A:
Q: What is a transaction price?
A: Transaction price: It is the price of a service or a good which is expressed relative to the similar…
Q: How can we illustrate Settlement Costs?
A: A cost is a monetary value that is incurred by the company to acquire something or to produce…
Q: What is an Acquisition costs?
A:
Q: What is target pricing? Who uses it?
A: Target pricing: A pricing method which is used to identify the price at which the product will be…
Q: Explain CMO Price Behavior and Prepayment Rates?
A: The question is based on the concept of Collateralized Mortgage Obligations (CMO) , interest rate…
Q: What properties should transfer-pricing systems have?
A:
Q: What is purchasing power parity? Why might purchasing power parity fail to hold?
A: To measure the prices of goods in different countries purchasing parity is used. As per the…
Q: What is the amount of Goodwill
A: Goodwill/Gain on Bargain purchase: Purchase consideration/Investment Add: Non controlling Interest…
Q: What are economic agents?
A: Examples of economic Agents: Departmental heads, production manager (internal agents), and supplier…
Q: What is purchasing power parity? How might afirm use this concept in its operations?
A: The question is based on the concept of equilibrium exchange rate in forex market, Purchasing power…
Q: What is the discounting process?
A: Discounting: It is the process where the bill is given to a bank to get the bill discounted before…
Q: Define the term Purchase Volume?
A: INTRODUCTION Purchases In accounting, the cost of making purchases during a time period with the…
Q: What is the meaning of Resource Market?
A: In business terms, anything which acts as input and contributes to the production process refers to…
Q: What is Capitalized-Equivalent Cost?
A: Cost is the price of something that buyer pays to the seller to purchase that thing.
Q: What is Transfer Pricing? What are the approaches in determining transfer prices? In your own…
A: Explanation of transfer pricing and approaches determining transfer pricing are as follows.
Q: What is frequency regarding the make or buy decision?
A: Make or Buy: Make or Buy decision are normal condition arises in front of management due to…
Q: What is goodwill?
A: Before acquiring a business, the vendor evaluates the business on various parameters. Goodwill is…
Q: what is meant by Capitalized cost?
A: Capitalized cost is a cost which is incurred in purchasing the fixed asset or making the fixed asset…
Q: What is Profit and Loss (PNL)?
A: A business organisation is established with an objective to make money and increase the worth of the…
Q: Outline the rules for identifying the optimal transfer price.
A: Transfer pricing:- Transfer pricing is considered as the value that is attached to those goods and…
Q: Briefly explain Purchasing Power Parity?
A: Purchasing Power Parity (PPP) is a theory of exchange rate determination. Purchasing power parity is…
Q: What is Modified Internal Rate of Return (MIRR) method?
A: Internal rate of return (IRR): The internal rate of return (IRR) is a measure utilized in capital…
Q: What's the best ETF to buy? And why?
A: ETFs are the best popular traded option for investors looking for growth in their money with both…
Q: What is e Direct Investment?
A: Direct Investment is an important concept in the world of finance. Direct investment is also…
Q: What are some advantages of asset allocation?
A: The advantages of applying asset allocation: Diversification: Long-term investing:…
Q: In what way do free resources becomes economic resources?
A: Economic resources are indeed the tools used to carry out economic transactions. Inputs into the…
What should the transfer price be and why?
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- Materials used by the Instrument Division of Ziegler Inc. are currently purchased from outside suppliers at a cost of 1,350 per unit. However, the same materials are available from the Components Division. The Components Division has unused capacity and can produce the materials needed by the Instrument Division at a variable cost of 900 per unit. a. If a transfer price of 1,000 per unit is established and 75,000 units of materials are transferred, with no reduction in the Components Divisions current sales, how much would Ziegler Inc.s total operating income increase? b. How much would the Instrument Divisions operating income increase? c. How much would the Components Divisions operating income increase?Morrill 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?Venezuela Oil Inc. transports crude oil to its refinery where it is processed into main products gasoline, kerosene, and diesel fuel, and by-product base oil. The base oil is sold at the split-off point for $1,000,000 of annual revenue, and the joint processing costs to get the crude oil to split-off are $10,000,000. Additional information includes: Required: Determine the allocation of joint costs using the net realizable value method, rounding the sales value percentages to the nearest tenth of a percent. (Hint: Reduce the amount of the joint costs to be allocated by the amount of the by-product revenue.)
- Calculating 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?Pacheco, Inc., produces two products, overs and unders, in a single process. The joint costs of this process were 50,000, and 14,000 units of overs and 36,000 units of unders were produced. Separable processing costs beyond the split-off point were as follows: overs, 18,000; unders, 23,040. Overs sell for 2.00 per unit; unders sell for 3.14 per unit. Required: 1. Allocate the 50,000 joint costs using the estimated net realizable value method. 2. Suppose that overs could be sold at the split-off point for 1.80 per unit. Should Pacheco sell overs at split-off or process them further? Show supporting computations.A company manufactures three products, L-Ten, Triol, and Pioze, from a joint process. Each production run costs 12,900. None of the products can be sold at split-off, but must be processed further. Information on one batch of the three products is as follows: Required: 1. Allocate the joint cost to L-Ten, Triol, and Pioze using the net realizable value method. (Round the percentages to four significant digits. Round all cost allocations to the nearest dollar.) 2. What if it cost 2 to process each gallon of Triol beyond the split-off point? How would that affect the allocation of joint cost to the three products?
- Oakes Inc. manufactured 40,000 gallons of Mononate and 60,000 gallons of Beracyl in a joint production process, incurring 250,000 of joint costs. Oakes allocates joint costs based on the physical volume of each product produced. Mononate and Beracyl can each be sold at the split-off point in a semifinished state or, alternatively, processed further. Additional data about the two products are as follows: An assistant in the companys cost accounting department was overheard saying ...that when both joint and separable costs are considered, the firm has no business processing either product beyond the split-off point. The extra revenue is simply not worth the effort. Which of the following strategies should be recommended for Oakes?Sell or Process Further, Basic Analysis Shenista Inc. produces four products (Alpha, Beta, Gamma, and Delta) from a common input. The joint costs for a typical quarter follow: The revenues from each product are as follows: Alpha, 100,000; Beta, 93,000; Gamma, 30,000; and Delta, 40,000. Management is considering processing Delta beyond the split-off point, which would increase the sales value of Delta to 75,000. However, to process Delta further means that the company must rent some special equipment that costs 15,400 per quarter. Additional materials and labor also needed will cost 8,500 per quarter. Required: 1. What is the operating profit earned by the four products for one quarter? 2. CONCEPTUAL CONNECTION Should the division process Delta further or sell it at split-off? What is the effect of the decision on quarterly operating profit?The following product Costs are available for Haworth Company on the production of chairs: direct materials, $15,500; direct labor, $22.000; manufacturing overhead, $16.500; selling expenses, $6,900; and administrative expenses, $15,200. What are the prime costs? What are the conversion costs? What is the total product cost? What is the total period cost? If 7,750 equivalent units are produced, what is the equivalent material cost per unit? If 22,000 equivalent units are produced, what is the equivalent conversion cost per unit?
- Oat Treats manufactures various types of cereal bars featuring oats. Simmons Cereal Company has approached Oat Treats with a proposal to sell the company its top selling oat cereal bar at a price of $27,500 for 20,000 bars. The costs shown are associated with production of 20,000 oat bars currently. The manufacturing overhead consists of $3,000 of variable costs with the balance being allocated to fixed costs. Should Oat Treats make or buy the oat bars?Boston Executive. Inc., produces executive limousines and currently manufactures the mini-bar inset at these costs: The company received an offer from Elite Mini-Bars to produce the insets for $2,100 per Unit and supply 1,000 mini-bars for the coming years estimated production. If the company accepts this offer and shuts down production of this part of the business, production workers and supervisors will be reassigned to other areas. Assume that for the short-term decision-making process demonstrated in this problem, the companys total labor costs (direct labor and supervisor salaries) will remain the same if the bar inserts are purchased. The specialized equipment cannot be used and has no market value. However, the space occupied by the mini bar production can be used by a different production group that will lease it for $55,000 per year. Should the company make or buy the mini-bar insert?