Problem 12 (Transfer Pricing; Divisional Performance) KCC, Inc., is a decentralized organization with five divisions. The...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Problem 12 (Transfer Pricing; Divisional Performance) KCC, Inc., is a decentralized organization with five divisions. The company's Electronics Division produces a variety of electronics items, including a KK8 circuit board. The division (which is operating at capacity) sells the KK8 circuit board to regular customers for P125.00 each. The circuit boards have a variable production cost of P82.50 each. The company's Clock Division has asked the Electronics Division to supply it with large quantity of KK8 circuit boards for only P90 each. The Clock Division, which is operating at only 60% of capacity, will put the circuit boards into a timing device that it will produce and sell to a large oven manufacturer. The cost of the timing device being manufactured by the Clock Division follows: KK8 circuit board (desired cost) Other purchased parts (from outside vendors) Other variable costs Fixed overhead and administrative costs Total cost per timing device P 90.00 300.00 207.50 100.00 P697.50 The manager of the Clock Division feels that she can't quote a price greater than P700 per timing device to the oven manufacturer if her division is to get the job. As shown above, in order to keep the price at P700 or less, she can't pay more than P90 per unit to the Electronics Division for the KK8 circuit boards. Although the price for the KK8 circuit boards represents a substantial discount from the normal P125.00 price, she feels that the price concession is necessary for her division to get the oven manufacturer contract and thereby keep its core of highly trained people. The company uses return on investment (ROI) to measure divisional performance. Required: 1. Assume that you are the manager of the Electronics Division. Would you recommend that your division supply the KK8 circuit boards to the Clock Division for P90 each as requested? Why or why not? Show all computations. 2. Would it be profitable for the company as a whole for the Electronics Division to supply the Clock Division with the circuit boards for P90 each? Explain your answer. 3. In principle, should it be possible for the two managers to agree to a transfer in this particular situation? If so, within what range would that transfer price lie? Problem 12 (Transfer Pricing; Divisional Performance) KCC, Inc., is a decentralized organization with five divisions. The company's Electronics Division produces a variety of electronics items, including a KK8 circuit board. The division (which is operating at capacity) sells the KK8 circuit board to regular customers for P125.00 each. The circuit boards have a variable production cost of P82.50 each. The company's Clock Division has asked the Electronics Division to supply it with large quantity of KK8 circuit boards for only P90 each. The Clock Division, which is operating at only 60% of capacity, will put the circuit boards into a timing device that it will produce and sell to a large oven manufacturer. The cost of the timing device being manufactured by the Clock Division follows: KK8 circuit board (desired cost) Other purchased parts (from outside vendors) Other variable costs Fixed overhead and administrative costs Total cost per timing device P 90.00 300.00 207.50 100.00 P697.50 The manager of the Clock Division feels that she can't quote a price greater than P700 per timing device to the oven manufacturer if her division is to get the job. As shown above, in order to keep the price at P700 or less, she can't pay more than P90 per unit to the Electronics Division for the KK8 circuit boards. Although the price for the KK8 circuit boards represents a substantial discount from the normal P125.00 price, she feels that the price concession is necessary for her division to get the oven manufacturer contract and thereby keep its core of highly trained people. The company uses return on investment (ROI) to measure divisional performance. Required: 1. Assume that you are the manager of the Electronics Division. Would you recommend that your division supply the KK8 circuit boards to the Clock Division for P90 each as requested? Why or why not? Show all computations. 2. Would it be profitable for the company as a whole for the Electronics Division to supply the Clock Division with the circuit boards for P90 each? Explain your answer. 3. In principle, should it be possible for the two managers to agree to a transfer in this particular situation? If so, within what range would that transfer price lie?
Expert Answer:
Related Book For
Managerial Accounting
ISBN: 9780073526706
12th Edition
Authors: Ray H. Garrison, Eric W. Noreen, Peter C. Brewer
Posted Date:
Students also viewed these accounting questions
-
Stanco, Inc., is a decentralized organization with five divisions. The companys Electronics Division produces a variety of electronics items, including an XL5 circuit board. The division (which is...
-
Weller Industries is a decentralized organization with six divisions. The companys Electrical Division produces a variety of electrical items, including an X52 electrical fitting. The Electrical...
-
LaserLife Printer Company is a decentralized organization with several autonomous divisions. The division managers are evaluated, in part, on the basis of the change in their return on invested...
-
The substitution u=sin(x) is suitable to evaluate the integral cosx sin 3x O True O False
-
The Idaho EPA, in developing its SIP, determined that the maximum sulfur dioxide emissions that could be captured from zinc smelters with the currently available technology was 72 percent. The state...
-
Hempstead Company has the following data for 2019: Item ____________________________ Units ______________ Cost Inventory, 12/31/2018 ...................... 940 ..................... $10,340 Purchases...
-
Why is it necessary to name the real party in interest in a lawsuit?
-
Following are sales and administrative cost data for Big Jack Burgers for the last four months: Administrative cost is a mixed cost, and sale is a potential cost driver. REQUIRED A. Using the...
-
what extent do ethical leadership frameworks shape corporate decision-making processes, stakeholder relationships, and reputational capital in the age of heightened corporate social responsibility...
-
The Wilson Company's marketing manager has determined that the price elasticity of demand for its product equals - 2.2. According to studies she carried out, the relationship between the amount spent...
-
Automated teller machine is a banking subsystem that provides bank customers with access to financial transactions in a public space without the need for a cashier, clerk, or bank teller. Customer...
-
The acronym referring to the analysis of forces in the external environment is __________. A. WASP B. PEST C. STOP D. SERCH
-
Explain how competitive benchmarking is used in strategic control. What are some commonly used competitive benchmarks?
-
Commoditization refers to the ability to individualize product and service offerings to meet specific buyer needs. True or False
-
What forms of organizational structure are available to strategic managers? What are the primary advantages and disadvantages of each?
-
Should corrective action always be taken when performance falls below the predetermined standard? Likewise, should corrective action never be taken when performance meets or exceeds the predetermined...
-
Which method is more effective for finding a specific value in a large dataset: using the 'Find' feature or sorting the data? Select the correct response: Changing the cell format Using 'Find'...
-
Find the work done in pumping all the oil (density S = 50 pounds per cubic foot) over the edge of a cylindrical tank that stands on one of its bases. Assume that the radius of the base is 4 feet, the...
-
What is meant by residual income?
-
Peak sales for Midwest Products, a wholesale distributor of leaf rakes, occur in August. The companys sales budget for the third quarter showing these peak sales is given below: From past experience,...
-
Climate-Control, Inc., manufactures a variety of heating and air-conditioning units. The company is currently manufacturing all of its own component parts. An outside supplier has offered to sell a...
-
Consider the monthly simple excess returns of 10 U.S. stocks from January 1990 to December 2003 for 168 observations. The 3-month Treasury bill rate on the secondary market is used to compute the...
-
Which provides stronger evidence against H0: a P-value of 0.05 or a P-value of 0.50?
-
A test is made of H0 : = 6 versus H1: 6. a. The test statistic is z = 0.75. Find and interpret the P-value. b. The test statistic is z = 2.20. Find and interpret the P-value. c. Which provides...
Study smarter with the SolutionInn App