Find what minimum price should the bw charge for extra units

Assignment Help Cost Accounting
Reference no: EM132609996

Energise Namibia Ltd ("EN") is a beverages manufacturing company based in Windhoek. One of their best-selling product is the traditional 500ml caffeine energy drink called the EN1. The company operates two divisions, the energy drink division ("ED") and the bottled water division ("BW").

The manufacture of EN1 requires purified water which the ED division is currently buying from the BW division. BW also sells its purified water as bottled water to the external market.

The following information relates to the ED division:

ED division

Selling price for EN1 bottle N$18

Costs per EN1 bottle:

Purified water from BW division N$4.00

Other ingredients externally sourced N$4.50

Direct labour cost N$3.50

Fixed overheads per year N$546 000

Units of EN1 produced and sold per year 150 000

Maximum demand in units for EN1 per year 180 000

The information relating to the BW division is also presented as follows:

BW division

Selling price per 500ml bottle to ED division N$4.00

Selling price per 500ml bottle to external customers N$7.00

Costs per 500ml bottle :

Materials N$1.50

Labour costs N$2.00

Fixed overheads per year N$20 000

Annual capacity (500ml bottles) 350 000

External demand for 500ml bottles 200 000

  • The BW division incurs a variable distribution cost of N$1 for each 500ml bottle that it sells outside. The Head Office currently enforces that the ED division buys its purified water from the BW division. However, at the present moment, the BW division is no longer willing to increase their supply of purified water to the ED division and have vowed to maintain the current level of supply.
  • The divisional head of the ED division presented her argument that if the Head Office could allow her to source purified water externally, she is able to get it at exactly the price that the BW division is selling to them. Given these squabbles, the Head Office of EN held a meeting with both divisional heads and allowed the ED division to purchase purified water from outside as long as the EN profit will be maximised.
  • For simplicity, you may assume that the ED division buys purified water from the BW division in the same package designed for external sales.

Question 1: Calculate the profit for each division and for EN as a whole in columnar format (table format) using the current transfer pricing policy. Your answer should clearly show the revenue and costs figures for internal and external sales where relevant.

Question 2: Based on the new policy, and assuming it is the best for EN, calculate the number of 500ml bottles that BW should sell externally and the number of 500ml bottles that ED should buy internally. Provide detailed justification of how you arrived at the transfer price.

Question 3: Using the old transfer pricing policy, what minimum price should the BW charge for the extra units required by the ED division if the ED division wants to meet their maximum demand for the EN1? Provide detailed justification of how you arrived at the transfer price. N.B. Where necessary, show all the relevant workings

Reference no: EM132609996

Previous Q& A

  Make the consolidation worksheet entries

Make the consolidation worksheet entries to recognize the effects of the intra-entity bonds at each of the following dates - December 31, 2019

  Differences between cardiac muscle and skeletal muscle

Briefly explain the similarities and differences between cardiac muscle and skeletal muscle and smooth muscle?

  What are preventive and curative methods to treat disease

The SARS outbreak in South Asia of late 2002-early 2003 almost became a pandemic. In a matter of weeks, it spread to over 37 countries.

  Discuss any two advantages that might accrue to kb

Khomas Beverages Ltd ("KB"), Discuss any two advantages that might accrue to KB of using the residual income as a performance measure.

  Analyze the assigned neurological disorder

Analyze the assigned neurological disorder and prepare a report in a two- to three-page document. Why is it important to determine whether a patient.

  Find what are the broad legal requirements applicable

Find What are the broad legal requirements applicable to corporate takeovers in Australia? What options do boards have to prevent a takeover?

  Which price related factors provides a price evaluation

Which price related factors provides a price evaluation adjustment to promote HUBZONE businesses in a small business set-aside procurement?

  What amounts for Valery would appear in financial statements

If the carrying amount of the marketing software was overvalued by $42,000, What amounts for Valery would appear in financial statements

  Which basic cost elements as applicable

When contractor is required to provide certified cost and pricing data, it must provide breakdown for which of the following basic cost elements, as applicable

  Workers about issues affecting indigenous australians

In the lunchroom at your workplace, a colleague is reading the paper. After reading an article about increases in funding for health

Reviews

Write a Review

 

Similar Q& A

  What is the expected contribution margin per unit

What percentage of the variation in overhead costs is explained by the independent - What is the expected contribution margin per unit

  What are some longer-term consequences of roths behaviour

What are some longer-term consequences of Roth's behaviour for Road Gear? What steps could senior management at Road Gear take to reduce the type of behaviour exhibited by Roth?

  Comprehensive income statement for each company

HI5020 Corporate Accounting - Calculate the effective tax rate for both companies that you have selected. Effective tax rate is calculated

  Compute the customer margin of fly high

BB Systems, Inc. makes paragliders, Using the company's activity- based costing system, compute the customer margin of Fly High.

  How has role changed and evolved over time

Show the role of the managerial accountant in today's business environment. How has role changed and evolved over time?

  Define basis of the amount prior to applying the tax rate

Is there a percentage deduction on the basis of the amount prior to applying the tax rate

  Determination of either investor objectives

Explain in detail how each of the following relates to the determination of either investor objectives or investor constraints that can be used to determine the portfolio policies for this three-year period for the Wood Museum Endowment Fund.

  Calculate the current ratio and quick ratio for ferentz

Complete the statement of partnership equity for Evans and Tessio, Accountants. Enter partner withdrawals as negative numbers - Journalize the entry to record the estimated product warranty expense for August.

  What is the total cost of goods sold for the month

Using T accounts, show the cost flows through a backflush costing system. Using T accounts, show the cost flows through a traditional costing system. What is the total cost of goods sold for the month?

  Gocke company is consider purchasing an instrument that

gocke company is consider purchasing an instrument that would cost 478800 and have a useful life of five years. the

  Choose one information system an example of this system is

choose one information system an example of this system is australian tax return system net bank sap supermarket self

  Change a products demand curve

Reducing the price of a substitute product the firm also produces and reducing the price of a complementary product the firm also produces.

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