& Preference of Divisional Managers for Transfer Pricing methods MINNET CORPORATION has two divisions. The MINING...

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& Preference of Divisional Managers for Transfer Pricing methods MINNET CORPORATION has two divisions. The MINING Division brings out a basic product TOLDINE, which is then transferred to the METALS Division TOLDINE is processed further in Metals Division into articles and is sold to customers at a price of 150 per unit The Mining Division is currently required by MINMET to transfer its total yearly output of 400,000 units of TOLDINE to the Metals division at 110% of Full Manufacturing Cost Chimited quantities of TOLDINE can be purchased and sold in the outside market at 90 per unit. To sell the TOLDINE it produces at 90 per unit in the outside market, the Mining Division would have to incur variable Marketing and Distribution Costs of 25 per unit Similarly, if the Metals Division purchased TOLDINE from the outside market, it would have to incur variable purchasing costs of 3 per unit. The following table gives the Manufacturing Costs per unit in the MINING and METALS Division for the next year. Particulars MINING Division Direct Materials Direct Manufacturing Labour Manufacturing Costs per unit 12 16 (25% Fixed and 75% Variable) 32 60 METALS Division 6 20 (60% Fixed and 40% Variable) 25 51 Reguired: 1. Calculate the Operating incomes for the Mining and Metals Divisions for the 400,000 units of TOLDINE transferred under each of the iolosing translies-pricing methods (Market Price, and (b) 110% of Full Manufacturing Costs. 2#MINMET rewards each Division Manager with a bonus of 1% of Division Operating Income (if positive), what is the amount of bonus that will be paid to each Division Manager under each of the Transfer Pricing methods in Requirement 12 Which transfer pricing methods will each Division Manager prefer to use? 3. What arguments would the Manager of the MINING Division make to support the Transfer-Pricing Method that he prefers? & Preference of Divisional Managers for Transfer Pricing methods MINNET CORPORATION has two divisions. The MINING Division brings out a basic product TOLDINE, which is then transferred to the METALS Division TOLDINE is processed further in Metals Division into articles and is sold to customers at a price of 150 per unit The Mining Division is currently required by MINMET to transfer its total yearly output of 400,000 units of TOLDINE to the Metals division at 110% of Full Manufacturing Cost Chimited quantities of TOLDINE can be purchased and sold in the outside market at 90 per unit. To sell the TOLDINE it produces at 90 per unit in the outside market, the Mining Division would have to incur variable Marketing and Distribution Costs of 25 per unit Similarly, if the Metals Division purchased TOLDINE from the outside market, it would have to incur variable purchasing costs of 3 per unit. The following table gives the Manufacturing Costs per unit in the MINING and METALS Division for the next year. Particulars MINING Division Direct Materials Direct Manufacturing Labour Manufacturing Costs per unit 12 16 (25% Fixed and 75% Variable) 32 60 METALS Division 6 20 (60% Fixed and 40% Variable) 25 51 Reguired: 1. Calculate the Operating incomes for the Mining and Metals Divisions for the 400,000 units of TOLDINE transferred under each of the iolosing translies-pricing methods (Market Price, and (b) 110% of Full Manufacturing Costs. 2#MINMET rewards each Division Manager with a bonus of 1% of Division Operating Income (if positive), what is the amount of bonus that will be paid to each Division Manager under each of the Transfer Pricing methods in Requirement 12 Which transfer pricing methods will each Division Manager prefer to use? 3. What arguments would the Manager of the MINING Division make to support the Transfer-Pricing Method that he prefers?

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1 Operating Incomes for Mining and Metals Divisions a Market Price Transfer Pricing Method Total Operating Income for ... View the full answer