Lion Ltd. has an operating Division X that produces microwave oven which can be sold to...

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Lion Ltd. has an operating Division X that produces microwave oven which can be sold to retailers directly. Division X is currently producing 3,000 units per month, which uses 60% of the maximum manufacturing capacity, and the manager assumes that there is no alternative use for the unutilized capacity. And the standard cost card of this microwave oven as following: Selling price Variable cost Apportioned fixed cost 150 70 40 Now, Division Y of Lion Ltd. requires 2,500 units of microwave oven from next month onwards, and the manager of Division Y intended to pay £100 per unit to Division X. Required: a). If you were manager of Division X, how would you respond to such an offer, please conduct the appropriate analysis and identify the accepted price range of each unit of microwave oven based on above information. b). You have been asked by the Financial Director of Lion Ltd. to discuss the advantages and disadvantages of using alternative systems of transfer prices as follows: i. Marginal cost transfer prices; ii. Cost-plus transfer prices. c). The Financial Director of Lion Ltd. suggests that when a perfectly competitive market exists for an intermediate product, the transfer price should be set as its external market price. Do you agree with this comment, and why? Lion Ltd. has an operating Division X that produces microwave oven which can be sold to retailers directly. Division X is currently producing 3,000 units per month, which uses 60% of the maximum manufacturing capacity, and the manager assumes that there is no alternative use for the unutilized capacity. And the standard cost card of this microwave oven as following: Selling price Variable cost Apportioned fixed cost 150 70 40 Now, Division Y of Lion Ltd. requires 2,500 units of microwave oven from next month onwards, and the manager of Division Y intended to pay £100 per unit to Division X. Required: a). If you were manager of Division X, how would you respond to such an offer, please conduct the appropriate analysis and identify the accepted price range of each unit of microwave oven based on above information. b). You have been asked by the Financial Director of Lion Ltd. to discuss the advantages and disadvantages of using alternative systems of transfer prices as follows: i. Marginal cost transfer prices; ii. Cost-plus transfer prices. c). The Financial Director of Lion Ltd. suggests that when a perfectly competitive market exists for an intermediate product, the transfer price should be set as its external market price. Do you agree with this comment, and why?

Answer rating: 100% (QA)

Step 14 Standard cost is one of the traditional cost accounting methods which represents the budgeted cost of each regular manufacturing process against actual costs compared this cost is established ... View the full answer