Calculate the contribution margin for both divisions

Assignment Help Managerial Accounting
Reference no: EM131199481 , Length: word count:2000

This is an assignment consisting of two parts , Part A and Part B.

Part A Report format is to be used for this part

Transfer pricing is used when products or services are transferred between different divisions of the same company.

Explain what a transfer price is. What are the different types of transfer prices that can be used ?

Why are these different types of transfer prices used? What are the purposes of using transfer prices?

Part B This question is a practical question requiring answers to the questions at the end of the following information.

The Complete Mining and Manufacturing Company has several divisions and two of these are involved in the transfer of products. The Cleaning and Scraping Division produces raw Cruden and transfers it to the Processing Division where it is processed into an alloy. The Processing Division then sells it on the open market for $160 per unit .Currently the Complete Mining and Manufacturing Company requires all of the Cruden to be transferred from the Cleaning and Scraping Division to the Processing Division . Currently the Cleaning and Scraping Division produces 400,000 units per year and transfers it all to the Processing Division at total actual manufacturing cost plus 10%.

The Cruden can be purchased and sold on the open market for $95 and all that is sent to market can be sold on the market at this price. If the Cleaning and Scraping Division sells the Cruden on the open market it will incur a variable selling cost of $5 per unit .

The following details show the unit costs for the Cleaning and Scraping and Processing Divisions

Cleaning and Scraping  Division       Processing Division
Transfer price from Cleaning and Scraping                                                                 $77
Direct material                                                                               18                            5
Direct labour                                                                                   12                           10
Manufacturing overhead                                                                 40  25
Total cost per unit                                                                           70117

Manufacturing overhead in Cleaning and Scraping is 25% fixed,75% variable

Manufacturing overhead in Processing is 60% fixed,40% variable

Required:

(a) Explain why transfer prices based on total actual costs are not appropriate as the basis for divisional performance measurement

(b) Using the market price as the transfer price, calculate the contribution margin for both divisions.

(c) If the Complete Mining and Manufacturing Company were to institute the use of negotiated transfer prices andallow divisions to buy and sell on the open market determine the price range for Cruden that would be acceptable to both divisions.

(d) Use the general transfer pricing rule to compute the lowest transfer price that would be acceptable to the Cleaning and Scraping Division?

Will this transfer price be the one that the manager ofthe Cleaning and Scraping Division prefers? Provide an explanation for your answer to this question.

 

Verified Expert

Reference no: EM131199481

Description of break-even point

Assume that a commercial airplane manufacturing company's annual fixed costs for the widebody passenger jet are $1,425 million, and its variable cost per airplane is $90 mil

Variance analysis to explain causes of increase in revenue

Use variance analysis to explain the causes of the increase in revenue from 2007 to 2008. Show your computations neatly, and clearly label the appropriate variances.

What is the return on assets for the company

What is the return on assets for this company? What is the return on common stockholders' equity for this company? If 2016 is the base year, what is the percentage increase in

Calculate the diluted eps for 20x1

Calculate the diluted EPS for 20X1 and calculate the diluted EPS assuming that the convertible preference shares were receiving a dividend of £6 per share instead of £2.50.

What is callable preferred stock

What is callable preferred stock? Why do corporations issue such stock? Given the different features that are associated with stock (callable, cumulative, preferred, etc.),

What is net cash provided by operating activities

Which of the following would not be a component of cash flows from investing activities? a. Sale of land. b. Purchase of securities. c. Purchase of equipment. d. Dividends pai

Calculation of change in sales for target

The chosen company is Target Corporation which is one of the largest retailer and chain stores in the world. It's one of those giant retailer having predominant presence in

Effective way to incorporate variance analysis

What is an effective way to incorporate variance analysis into the budget process, What are the differences between labor and material variances and how is a quantity variance

Reviews

Write a Review

 
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd