QUESTION 3 [15 MARKS] CD is a producer of soft drinks. The company has two divisions:...

 

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QUESTION 3 [15 MARKS] CD is a producer of soft drinks. The company has two divisions: Division C and Division D. Division C manufactures metal cans that are sold to Division Djand also to external customers. Division D produces soft drinks and sells them to external customers in the cans that it obtains from Division C. Division C annual budget information Market selling price per 1 000 cans Variable costs per can Fixed costs Production capacity External demand for cans Demand from Division D Division D annual budget information Selling price per canned soft drink Other variable costs per canned soft drink (excluding the can) Cost of a can (from Division C) Fixed costs N$130 N$0.04 N$2.4 million 40 million cans 38 million cans 20 million cans N$0.50 N$0.15 At transfer price N$1 750 000 Transfer Pricing Policy: Division C is required to satisfy the demand of Division D before selling cans externally. The transfer price for a can is full cost-plus 20%. REQUIRED: a) Produce the profit statement for each Division showing sales, costs and the overall total profit of CD. (show external sales and inter-divisional transfers separately where appropriate). b) Suppose Division D supplies the external market with 20 million cansland Division's demand. has grown to the total production capacity of Division C from the current 20 million cans. Division Cexternal selling price is N$150 per 1,000 cans Calculate the minimum transfer price to Division D MARKS 11 4 QUESTION 3 [15 MARKS] CD is a producer of soft drinks. The company has two divisions: Division C and Division D. Division C manufactures metal cans that are sold to Division Djand also to external customers. Division D produces soft drinks and sells them to external customers in the cans that it obtains from Division C. Division C annual budget information Market selling price per 1 000 cans Variable costs per can Fixed costs Production capacity External demand for cans Demand from Division D Division D annual budget information Selling price per canned soft drink Other variable costs per canned soft drink (excluding the can) Cost of a can (from Division C) Fixed costs N$130 N$0.04 N$2.4 million 40 million cans 38 million cans 20 million cans N$0.50 N$0.15 At transfer price N$1 750 000 Transfer Pricing Policy: Division C is required to satisfy the demand of Division D before selling cans externally. The transfer price for a can is full cost-plus 20%. REQUIRED: a) Produce the profit statement for each Division showing sales, costs and the overall total profit of CD. (show external sales and inter-divisional transfers separately where appropriate). b) Suppose Division D supplies the external market with 20 million cansland Division's demand. has grown to the total production capacity of Division C from the current 20 million cans. Division Cexternal selling price is N$150 per 1,000 cans Calculate the minimum transfer price to Division D MARKS 11 4

Answer rating: 100% (QA)

Transfer Cost The interdepartmental transfer price is fullcost 20 The full is determined by adding t... View the full answer