Maple Rose Leather is a medium size business that specializes in the production of leather and...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Maple Rose Leather is a medium size business that specializes in the production of leather and the design and production of leather wallets, notebook covers and bags. The company has two divisions: the Leather Division and the Accessories Division. The Leather Division can transfer the leather to the Accessories Division or it can sell it to external clients. The Leather Division currently produces and sells 262,500 sq. ft (square feet) per year to external clients at an average price of $28.50 per sq.ft. Variable costs of production average $17 and fixed costs of $11.50 per sq. ft. The Leather Division incurs $3.20 of variable selling costs on external sales. Fixed costs are based on the practical capacity of the plant which 315,000 sq. ft per year. The Accessories Division is interested in acquiring up to 52,500 sq. ft per year. Required: 1. From the standpoint of Maple Rose Leather, should the leather be transferred? Determine the financial benefit or cost of your recommendation. (3 marks) 2. Using the general guidelines for transfer pricing, what is the minimum transfer price the Leather Division should accept? (2 marks) 3. What is the range of acceptable transfer prices? (3 marks) 4. Now assume that demand in the external market for the components is expected to increase by 9%. The Accessories Division has negotiated with an external supplier to supply 52,500 sq.ft. of leather at a price of $25.50 per element. If the Accessories Division reduces its volume below the 52,500 sq. ft, it must pay $35.50 per sq. ft. What is the optimum sourcing arrangement for the company? (12 marks) Maple Rose Leather is a medium size business that specializes in the production of leather and the design and production of leather wallets, notebook covers and bags. The company has two divisions: the Leather Division and the Accessories Division. The Leather Division can transfer the leather to the Accessories Division or it can sell it to external clients. The Leather Division currently produces and sells 262,500 sq. ft (square feet) per year to external clients at an average price of $28.50 per sq.ft. Variable costs of production average $17 and fixed costs of $11.50 per sq. ft. The Leather Division incurs $3.20 of variable selling costs on external sales. Fixed costs are based on the practical capacity of the plant which 315,000 sq. ft per year. The Accessories Division is interested in acquiring up to 52,500 sq. ft per year. Required: 1. From the standpoint of Maple Rose Leather, should the leather be transferred? Determine the financial benefit or cost of your recommendation. (3 marks) 2. Using the general guidelines for transfer pricing, what is the minimum transfer price the Leather Division should accept? (2 marks) 3. What is the range of acceptable transfer prices? (3 marks) 4. Now assume that demand in the external market for the components is expected to increase by 9%. The Accessories Division has negotiated with an external supplier to supply 52,500 sq.ft. of leather at a price of $25.50 per element. If the Accessories Division reduces its volume below the 52,500 sq. ft, it must pay $35.50 per sq. ft. What is the optimum sourcing arrangement for the company? (12 marks)
Expert Answer:
Answer rating: 100% (QA)
Question 1 Determine whether the leather should be transferred from the Leather Division to the Accessories Division External Sales Total Revenue Exte... View the full answer
Related Book For
Cornerstones of Cost Management
ISBN: 978-1111824402
2nd edition
Authors: Don R. Hansen, Maryanne M. Mowen
Posted Date:
Students also viewed these accounting questions
-
PT. Sultan Food sells food and variety snacks and cake. The company has one restaurant location and serves catering orders for offices. So far, all dishes are made by themselves using family recipes...
-
Horsepower Hookup, Inc., is a large automobile company that specializes in the production of high-powered trucks. The company is determining cost allocations for purposes of performance evaluation. A...
-
Youve just been hired onto ABC Company as the corporate controller. ABC Company is a manufacturing firm that specializes in making cedar roofing and siding shingles. The company currently has annual...
-
Describe two methods for determining the molecular mass of a polypeptide. Which is more accurate and why?
-
The Excel worksheet form that follows is to be used to recreate the Review Problem related to Mynor Corporation. Download the workbook containing this form at from Connect. On the website you will...
-
Distinguish between a pick list and a packing slip.
-
If two graphs are isomorphic, then their complements are isomorphic. Determine whether each statement is always true, sometimes true, or never true.
-
Dickinson Inc. owns the following assets. Compute the composite depreciation rate and the composite life of Dickinson's assets. Estimated Useful Life 10 years Cost Asset Salvage A $70,000 $ 7,000...
-
R&D Manufacturing Incorporated and XYZ Technology are global companies that produce similar products. The following data were taken from the companies' 2 0 1 8 annual reports. Dollar amounts are in...
-
Today is September 16, Year 2. You, CPA, work for Garcia & Garcia LLP, a medium-sized firm located in Montreal. Jules Garcia calls you into his office. "CPA, I have a very special engagement for you....
-
6.3. Determine the diameters after deformation and the distribution of principal stresses along the radius of the infinite cylinder subjected to internal pressure as shown in Fig. P6.3. Can you...
-
What are the advantages and disadvantages of: a Decentralizing systems analysis b Centralizing programming
-
What impact has the widespread availability of minicomputers and microcomputers had on the decision to centralize or decentralize the information systems function?
-
Employee theft losses to employers are at least more than the total cost of street crime annually. a. 3 times b. 10 times c. 50 times d. 100 times
-
Why should auditors be concerned about how well information systems staff are developed?
-
Sexual harassment is a specific type of misbehavior. Some refer to sexual harassment as a form of _______________. a. white-collar crime b. business organization problem c. violence d. manufacturing...
-
Access an online loan calculator with annual payments, such as the one at mycalculators.com, to produce an amortization schedule for Welton Corporations installment note that has original principal...
-
Consider the advantages and disadvantages of extending property rights so that everyone would have the right to prevent people imposing any costs on them whatsoever (or charging them to do so).
-
Nabors Company had actual quality costs for the year ended June 30, 2013, as given below. Prevention costs: Prototype inspection .................. $ 300,000 Vendor certification...
-
Data for Torleson Company are as follows: Budgeted price..........................................$15.00 Actual price..............................................$14.80 Budgeted...
-
1. A CPA would recommend implementing an activity-based costing system under which of the following circumstances? a. The client is a single-product manufacturer. b. Most of the client's costs...
-
Analyzing marketing variances A manufacturing company makes three different sizes of bass boats. These boats are sold to distributors who outfit them for fishing by adding outboard motors and...
-
Direct material variances The Baba Jim Company makes a variety of furniture items. One product, a sofa, has the following material standards: Pine lumber Oak lumber Springs 20 board feet @ $ .80 per...
-
Direct labor variances Wha Joon Company makes steel shelves, steel furniture, and several other steel products primarily for use in offices and industrial organizations. Standard labor costs for the...
![Mobile App Logo](https://dsd5zvtm8ll6.cloudfront.net/includes/images/mobile/finalLogo.png)
Study smarter with the SolutionInn App