Q. XYZ Company has two (02) Divisions ie Food Manufacturing Division (FD) and Restaurant Divisions (RD)...

Transcribed Image Text:

Q. XYZ Company has two (02) Divisions ie Food Manufacturing Division (FD) and Restaurant Divisions (RD) FD produces soft drinks that can be procured by RD. CEO of XYZ Company wants to maximize the profit of the whole company through transfer pricing. Basic facts are as follows Case #1: FD Division: Production capacity of FD 200,000 pieces/ month Variable cost per piece BDT 6. Fixed cost BDT 1,000,000/month Selling price to outside customer BDT 15 per piece Page 2 of 4 RD Division: RD is currently purchasing 40,000 pieces from outside vendor BDT 12/pcs Required: 1. 2. Assume that the FD has not enough capacity to handle all the need of RD What is the acceptable range of transfer price between the two divisions? Assume the FD has enough capacity to handle all the need of RD. What is the acceptable range of transfer price between the two divisions? 3. Assume that the FD is selling 180,000 pcs of Soft drinks to the outside customers. What is the acceptable range of transfer price between the two divisions? Case # 2: Refer to the original data in Case#1; assume that RD needs 80,000 pieces of flavored soft drinks per month. The FD' variable cost to manufacture the soft drinks would cost BDT 8 per piece. To produce flavored soft drinks, the FD would have to cut down its production and sales from 200,000 pieces to 160,000 pieces per month. Required: What is lowest acceptable.transfer price for FD? Q. XYZ Company has two (02) Divisions ie Food Manufacturing Division (FD) and Restaurant Divisions (RD) FD produces soft drinks that can be procured by RD. CEO of XYZ Company wants to maximize the profit of the whole company through transfer pricing. Basic facts are as follows Case #1: FD Division: Production capacity of FD 200,000 pieces/ month Variable cost per piece BDT 6. Fixed cost BDT 1,000,000/month Selling price to outside customer BDT 15 per piece Page 2 of 4 RD Division: RD is currently purchasing 40,000 pieces from outside vendor BDT 12/pcs Required: 1. 2. Assume that the FD has not enough capacity to handle all the need of RD What is the acceptable range of transfer price between the two divisions? Assume the FD has enough capacity to handle all the need of RD. What is the acceptable range of transfer price between the two divisions? 3. Assume that the FD is selling 180,000 pcs of Soft drinks to the outside customers. What is the acceptable range of transfer price between the two divisions? Case # 2: Refer to the original data in Case#1; assume that RD needs 80,000 pieces of flavored soft drinks per month. The FD' variable cost to manufacture the soft drinks would cost BDT 8 per piece. To produce flavored soft drinks, the FD would have to cut down its production and sales from 200,000 pieces to 160,000 pieces per month. Required: What is lowest acceptable.transfer price for FD?