Word Wizard is a publishing company with a number of different book lines. Each line has contracts with a number of different authors. The company also owns a printing operation called Quick Press. The book lines and the printing operation each operate as a separate profit center. The printing operation earns revenue by printing books by authors under contract with the book lines owned by Word Wizard, as well as authors under contract with other companies. The printing operation bills out at $0.01 per page, and a typical book requires 500 pages of print. A manager from Business Books, one of the Word Wizard’s book lines, has approached the manager of the printing operation offering to pay$0.007 per page for 1,500 copies of a 500-page book. The book line pays outside printers $0.009 per page. The printing operation’s variable cost per page is $0.004.
Instructions Determine whether the printing should be done internally or externally, and the appropriate transfer price, under each of the following situations. (a) Assume that the printing operation is booked solid for the next 2 years, and it would have to cancel an obligation with an outside customer in order to meet the needs of the internal division. (b) Assume that the printing operation has available capacity. (c) The top management of Word Wizard believes that the printing operation should always do the printing for the company’s authors. On a number of occasions, it has forced the printing operation to cancel jobs with outside customers in order to meet the needs of its own lines. Discuss the pros and cons of this approach. (d) Calculate the change in contribution margin to each division, and to the company as a whole, if top management forces the printing operation to accept the $0.007 per page transfer price when it has no available capacity.
Contribution Margin Contribution margin is an important element of cost volume profit analysis that managers carry out to assess the maximum number of units that are required to be at the breakeven point. Contribution margin is the profit before fixed cost and taxes...
Students also viewed these Managerial Accounting questions
Verbose Village is a publishing company with a number of different book lines. Each line has...... ... of this approach. (d) Calculate the change in contribution margin to each division, and to the company as a whole, if top management forces the printing operation to accept the $0.007 per page...
Deitz is a publishing company with a number of different magazines and other publications. The...... ... cons of this approach.(d) Calculate the change in contribution margin to each division, and to the company as a whole, if top management forces the printing operation to accept the $0.016 per...
Franco is a publishing company with a number of different magazines and other publications. The...... ... cons of this approach.(d) Calculate the change in contribution margin to each division, and to the company as a whole, if top management forces the printing operation to accept the $0.015 per...
FunTime Cruiseline offers nightly dinner cruises departing from several cities on the eastern coast of the United States including Charleston, Baltimore, and Alexandria. Dinner cruise tickets sell for $50 per passenger. FunTime Cruiseline’s variable cost of providing the dinner is $30 per...
Wilton, Inc. had net sales in 2010 of $1,400,000. At December 31, 2010, before adjusting entries, the balances in selected accounts were: Accounts Receivable $250,000 debit, and Allowance for Doubtful Accounts $2,400 credit. If Wilton estimates that 2% of its net sales will prove to be...
The following information has been extracted from the draft financial statements of Snowdrop, a limited liability company. SNOWDROP STATEMENTS OF FINANCIAL POSITION AS AT 31 MAY 2019 2020 GHc\'000 GHc\'000 GHc\'000 Non-current assets 4,600 Current assets Inventory 580 500 Trade receivables 360 Bank...
Using 1,2-dimethylcyclohexene as your starting material, show how you would synthesize the following compounds. (Once you have shown how to synthesize a compound, you may use it as the starting material in any later parts of this problem.) If a chiral product is shown, assume it is part of a...
The January 2011 issue of Strategic Finance includes an article by J. Lockhart, A. Taylor, K. Thomas, B. Levetsovitis, and J. Wise entitled “When a Higher Price Pays Off.”InstructionsRead the article and answer the following questions.(a) Explain what is meant by a “low-cost” supplier...
Watts Company makes various electronic products. The company is divided into a number of autonomous divisions that can either sell to internal units or sell externally. All divisions are located in buildings on the same piece of property. The Board Division has offered the Chip Division $20 per...