managment accounting for decision making

Project Description:

question #1:
star co. a dishwasher manufacturer has two divisions in the same country: electro and assembly. they are evaluated as profit centers and operate at below full capacity. the electro division produces the electronic component of the dishwasher.

the electro division can produce 25000 units of electronic components. it is now producing 17500 units. it sells 12000 units to assembly for $250 per unit and 5500 units to an external client at a market price of $255 each. a conflict occurs when the manager of assembly realizes that he is buying the electronic components al almost the same price an external client, even though assembly is a division of star co.

the electro division’s manager is sympathetic to the situation. however, it would be difficult for him to reduce the transfer price because the unit variable operating costs amount to $200. if the sales were interdivisional, 80% of selling and administrative expenses could be saved. selling and administrative expenses are currently 15% of the variable operating costs. there are also fixed operating costs of $50 per unit.

1. what are the motivations of the electronic division to sell the electronic component at full cost plus a profit margin?

2. could the electro division reduce its transfer price for the electronic component? if so, what should be the minimum transfer price accepted by the electro division? explain and show all your calculations.

3. does the transfer price affect the profitability of the company as a whole? explain.

4. suppose that the bring together division needs an additional 10000 electronic components. what would be the minimum transfer price accepted by electro division? show all your calculations.
question # 2:
farook inc., is decentralized company with two divisions. division dm manufactures and sells doors and windows and has excess capacity. division gm manufactures and sells glass and xxxx at full capacity. division gm can also sell the glass to an outside customer at a price of $56.00 per square foot. the cost for division gm to produce 1 square foot of glass is as follows:

rm $ 17.75
dl costs 10.50
variable overhead costs 9.25
fixed overhead costs 4.25
total unit costs $ 41.75

a 6 square foot window is used as a base model for pricing. it sells for $695 and costs $355 to produce (excluding the cost of glass), and 25% of the $355 costs are fixed. the 6 square foot window uses 6sf of glass. for other sizes of windows, 10% per foot is either added or subtracted to the selling price and production costs of the base model.

1. suppose division dm could use the excess capacity to fill a special order of 65 windows that each require 4 square foot of glass. these windows would be sold at $556 per unit. the variable cost of producing each window is $213, excluding the cost of glass. would farook inc. as a whole, benefit from the special order if the glass had to be transferred to division dm at a price of $38? show your calculations.

2. suppose division dm needs 120000 square feet of glass this year and division g is operating at its full capacity of 100000 sf. what would be the minimum transfer price accepted by division gm and the maximum price paid by division dm? show all you calculations.

3. if division gm were not operating at full capacity, determine the minimum transfer price acceptable to division g.
question #3:
sigma manufacturer has met all its production requirements for the current month, and with its capacity it has the opportunity to produce additional tvs. four different sizes are produced and there is sufficient demand for the additional production of any size of the product. the selling prices and unit costs for the different sizes of tvs are as follows:

14” tv 22” tv 36” tv 46”tv
selling prices $295 $425 $555 $675
direct materials 90 155 230 310
dl 60 75 95 110
variable overhead 45 50 60 75
fixed overhead 55 60 70 85

1) applied on the basis of direct labour hours at the rate of $15 per direct labour hour.
2) applied on the basis of machine hours at the rate of $25 per machine hour.

a) if the company has excess machine capacity and can add as much labour as needed, which size of tvs should the excess production capacity be used to produce in order to maximize contribution margin?

b) if the company has excess production capacity but limited labour hours, which size of tvs should the excess production be used for, in order to maximize contribution margin per direct labour hour?

c) if the company can add labour as needed but has limited machine capacity, which size of tvs should the excess production is used for, in order to maximize contribution per machine hour?
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