The Indian Spirit Company is operating with two divisions. Division H is producing a product line...
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The Indian Spirit Company is operating with two divisions. Division H is producing a product line that is required as a component part of the product being manufactured by Division W. For Division H, the costs of producing the component part per unit are: Direct materials Direct labor Variable overhead Fixed overhead factory factory P 10 P 8 P 5 P2 The product of Division H is being sold in a highly competitive market for P 30 per unit. Division W is currently buying 80% of the production output of Division H at a negotiated price of P28 per unit. It is expected that 25,000 units of product will be produced by Division H. With emphasis on divisional welfare rather than the company's welfare, a new transfer price must be developed. It is suggested that a 40% mark-up on cost will be added when transferring the product from Division H to Division W. An additional processing cost for Division W is P 8 per unit. The selling price of the product of Division W is P 45 per unit. REQUIRED: Determine the gross profit per unit of the product from Division W under each of the following independent assumptions: A) Transfer price is full-cost based. B) Transfer price is cost-based plus mark-up. C) Transfer price is based on a negotiated price. D) Transfer price is market-based. The Indian Spirit Company is operating with two divisions. Division H is producing a product line that is required as a component part of the product being manufactured by Division W. For Division H, the costs of producing the component part per unit are: Direct materials Direct labor Variable overhead Fixed overhead factory factory P 10 P 8 P 5 P2 The product of Division H is being sold in a highly competitive market for P 30 per unit. Division W is currently buying 80% of the production output of Division H at a negotiated price of P28 per unit. It is expected that 25,000 units of product will be produced by Division H. With emphasis on divisional welfare rather than the company's welfare, a new transfer price must be developed. It is suggested that a 40% mark-up on cost will be added when transferring the product from Division H to Division W. An additional processing cost for Division W is P 8 per unit. The selling price of the product of Division W is P 45 per unit. REQUIRED: Determine the gross profit per unit of the product from Division W under each of the following independent assumptions: A) Transfer price is full-cost based. B) Transfer price is cost-based plus mark-up. C) Transfer price is based on a negotiated price. D) Transfer price is market-based.
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A Transfer price is fullcost based Answer Under the fullcostbased transfer price assumption the tran... View the full answer
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Management Accounting Information for Decision-Making and Strategy Execution
ISBN: 978-0137024971
6th Edition
Authors: Anthony A. Atkinson, Robert S. Kaplan, Ella Mae Matsumura, S. Mark Young
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