Dole Industries produces chemical compounds. Division A mixes the compounds which are then transferred to Division...
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Dole Industries produces chemical compounds. Division A mixes the compounds which are then transferred to Division B for refinement for 125% of full manufacturing costs. Current output by Division A is 50,000 compounds. Division B is then able to sell the final product to pharmaceutical companies for $150 per compound. Division B can purchase compounds in the market for a price of $75 a compound. Divisional costs per compound are: • Division A ● o Direct Materials - $10 o Direct Manufacturing labor - $10 Manufacturing overhead cost-$25 (40% of costs are variable) Division B o Direct Materials - $3 o Direct Manufacturing labor costs - $12 o Manufacturing overhead cost - $20 (35% of costs are variable) Required a. Calculate the operating income for each division under the following transfer-pricing methods: Market price and 125% of full manufacturing cost. b. If manager of each division receives a bonus of 1% based on the divisional operating income, report what bonus each manager would receive under each transfer price method. Which transfer price would each manager prefer? Dole Industries produces chemical compounds. Division A mixes the compounds which are then transferred to Division B for refinement for 125% of full manufacturing costs. Current output by Division A is 50,000 compounds. Division B is then able to sell the final product to pharmaceutical companies for $150 per compound. Division B can purchase compounds in the market for a price of $75 a compound. Divisional costs per compound are: • Division A ● o Direct Materials - $10 o Direct Manufacturing labor - $10 Manufacturing overhead cost-$25 (40% of costs are variable) Division B o Direct Materials - $3 o Direct Manufacturing labor costs - $12 o Manufacturing overhead cost - $20 (35% of costs are variable) Required a. Calculate the operating income for each division under the following transfer-pricing methods: Market price and 125% of full manufacturing cost. b. If manager of each division receives a bonus of 1% based on the divisional operating income, report what bonus each manager would receive under each transfer price method. Which transfer price would each manager prefer?
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To calculate the operating income for each division under the market price and 125 of full manufacturing cost transferpricing methods well first calculate the relevant costs and revenues for both divi... View the full answer
Related Book For
Fundamentals of Cost Accounting
ISBN: 978-0077398194
3rd Edition
Authors: William Lanen, Shannon Anderson, Michael Maher
Posted Date:
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