Golf Holdings has two divisions: Alpha and Bravo. Alpha has a variable cost of sales of £11 per unit which is its transfer price to Bravo. However, Alpha can sell its product on the open market for a variable selling cost of £7 per unit. It is unable to do so however, as Bravo takes the entire product that Alpha can produce. Bravo uses the product it buys from Alpha as a raw material and adds its own cost of sales of £12. Bravo’s market selling price is £45 although it incurs variable selling expenses of £10 per unit. How does the transfer price influence the performance evaluation of Alpha and Bravo? What changes would you suggest?
Answer to relevant QuestionsExplain the difference between accounting, an account, and accountability. Virko PLC buys a new computer system for £180,000 on 1st January. It expects the system to last for four years. If the company’s financial year is from 1st January to 31st December, the value of the computer system in ...The Clarity Division of Mega Glass PLC has an investment of £1,500,000 and currently generates a net profit of £112,500 per year. Clarity has proposed an additional investment of £1,000,000 which is expected to return an ...Debtors increase by £15,000 and creditors increase by £11,000. The effect on cash flow of the change in working capital is an: c) decrease of £4,000 Management has asked you to prepare a variance report and reconcile the budget and actual result. Management believes that a flexible budget may be helpful in understanding the variances.
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