ACTG 2020 Lecture Notes - Lecture 10: Transfer Pricing, Six Sigma, General Idea

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14 Jun 2016

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Asks what if one division can sell to an outsider. What happens if you have idle capacity: you don"t consider the fixed costs (ignore the fixed costs, will sell as long as its sold above the variable costs. What happens if you don"t have idle capacity: sales will have to be forgone so you have to consider the lost cm. What happens if two are dealing with each other and if one sells to an outside party. Idle capacity - what happens if one division sells to an outsider and what happens if they don"t. (part- 1, compare the total costs if it gets transferred internally. The toal profit made if they sell to the second division. Part 2- what happens if they sell outside and compare this to part 1) Know the benefits/disadvantages of diff. transfer pricing methods (i. e market) Create a cash budget ** don"t rush through it. Keep track of shit and it will be simple.

Related Questions

1.Home Products, Inc., is planning the introduction of a new food dryer. To compete effectively, the dryer would have to be priced at no more than $40 per unit. An investment of $600,000 would have to be made in order to produce and sell the new dryer. The company requires a return on investment of at least 25% on new products. Assuming that the company expects to produce and sell 30,000 dryers per year, the target cost per dryer would be closest to:

2.Division C makes a part that it sells to customers outside of the company. Data concerning this part appear below:


Selling price to outside customers	$	75
Variable cost per unit	$	54
Total fixed costs	$	150,000
Capacity in units		10,000

Division D of the same company would like to use the part manufactured by Division C in one of its products. Division D currently purchases a similar part made by an outside company for $79 per unit and would substitute the part made by Division C. Division D requires 1,000 units of the part each period. Division C has ample excess capacity to handle all of Division Dâs needs without any increase in fixed costs and without cutting into outside sales. What is the lowest acceptable transfer price from the standpoint of the selling division?

Collyer Products Inc. has a Valve Division that manufactures and sells a standard valve as follows:


Capacity in units		160,000
Selling price to outside customers on the intermediate market		$ 20
Variable costs per unit		$ 12
Fixed costs per unit (based on capacity)		$ 9

The company has a Pump Division that could use this valve in the manufacture of one of its pumps. The Pump Division is currently purchasing 16,000 valves per year from an overseas supplier at a cost of $19 per valve.

Required:

1.	Assume that the Valve Division has ample idle capacity to handle all of the Pump Division's needs. What is the acceptable range, if any, for the transfer price between the two divisions?

Assume that the Valve Division is selling all that it can produce to outside customers on the intermediate market. What is the acceptable range, if any, for the transfer price between the two divisions?

Assume again that the Valve Division is selling all that it can produce to outside customers on the intermediate market. Also assume that $2 in variable expenses can be avoided on transfers within the company, due to reduced selling costs. What is the acceptable range, if any, for the transfer price between the two divisions?

Assume the Pump Division needs 40,000 special high-pressure valves per year. The Valve Division's variable costs to manufacture and ship the special valve would be $10 per unit. To produce these special valves, the Valve Division would have to reduce its production and sales of regular valves from 160,000 units per year to 80,000 units per year. As far as the Valve Division is concerned, what is the lowest acceptable transfer price? (Round your answer to 2 decimal places.)

greyporpoise145

Task 4 (10 marks)

Crede Inc. has two divisions: Division A makes and sells studentdesks and Division B

manufactures and sells reading lamps.

Each desk has a reading lamp as one of its components. DivisionA can purchase reading lamps at

a cost of $10 from an outside vendor. Division A needs 10,000lamps for the coming year.

Division B has the capacity to manufacture 50,000 lampsannually. Sales to outside customers are

estimated at 40,000 lamps for the next year. Reading lamps aresold at $12 each. Variable costs

are $7 per lamp and include $1 of variable sales costs that arenot incurred if lamps are sold

internally to Division A. The total amount of fi xed costs forDivision B is $80,000.

Required: Consider the following independentsituations:

1. What should be the minimum transfer price accepted byDivision B for the 10,000 lamps and

the maximum transfer price paid by Division A? Justify youranswer.

2. Suppose Division B could use the excess capacity to produceand sell externally 15,000

units of a new product at a price of $7 per unit. The variablecost for this new product is $5

per unit. What should be the minimum transfer price accepted byDivision B for the 10,000

lamps and the maximum transfer price paid by Division A? Justifyyour answer.

3. If Division A needs 15,000 lamps instead of 10,000 during thenext year, what should be the

minimum transfer price accepted by Division B and the maximumtransfer price paid by

Division A? Justify your answer.

GB519/MADM/3T2015/MIR/SK Page 4 of 4

Part B: Critical reflection (approximately 1,000words)

You had to practically apply the decision making models andtools you have learned about

throughout the subject. Reflect on your experience in completingthe various assessments in this

course. What major learning on measurement and decision makingcan you apply in practice as a

manager in your organisation?

The list below provides some questions you may wish to considerin your critical reflection. These

are suggestions only. You may address issues that are not onthis list.

1. Has what you have learned in this subject created anincreased awareness of the

importance of decision making as a management activity? Why orwhy not?

2. Which model or tool most influenced you as you worked yourway through the subject?

Why?

3. How critical do you believe the quality of decision making isto an organisation? Why?

4. Which of the models and tools would you use as a manager?Why?

ACTG 2020 Lecture Notes - Lecture 10: Transfer Pricing, Six Sigma, General Idea

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