6. Transfer Price ComputationPakyaw Company is operating with two divisions. Division S is producing a product line that is required as acomponent part of the product being manufactured by Division B.For Division S, the costs of producing the component part per unit are:P 10Direct materialsDirect laborP8P5P2Variable factory overheadFixed factory overheadThe product of Division S is being sold in a highly competitive market for P 30 per unit.Division B is currently buying 80% of the production output of Division S at a negotiated price of P 28 perunit. It is expected that 25,000 units of product will be produced by Division S.With emphasis on divisional welfare rather than the company's welfare, a new transfer price must bedeveloped. It is suggested that a 40% mark-up on cost will be added when transferring the product fromDivision S to Division B.The unit selling price of the product of Division B is P 45 while the additional unit processing cost is P 8.REQUIRED:Determine Division B's gross profit per unit under each of the following independent assumptions:A) Transfer price is full-cost based.B) Transfer price is cost-based plus mark-up.C) Transfer price is based on a negotiated price.D) Transfer price is market-based.ActivateGo to Sett

Gross profit is the measurement of profitability being calculated for the overall financial health…

REQUIRED: Determine Division B's gross profit per unit under each of the following independent assumptions: A) Transfer price is full-cost based. B) Transfer price is cost-based plus mark-up. C) Transfer price is based on a negotiated price. D) Transfer price is market-based. A G

REQUIRED: Determine Division B's gross profit per unit under each of the following independent assumptions: A) Transfer price is full-cost based. B) Transfer price is cost-based plus mark-up. C) Transfer price is based on a negotiated price. D) Transfer price is market-based. A G

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter5: Process Costing

Section: Chapter Questions

Problem 1PB: The following product costs are available for Stellis Company on the production of erasers: direct...

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The following product costs are available for Stellis Company on the production of erasers: direct materials, $22,000; direct labor, $35,000; manufacturing overhead, $17,500; selling expenses, $17,600; and administrative expenses; $13,400. What are the prime costs? What are the conversion costs? What is the total product cost? What is the total period cost? If 13,750 equivalent units are produced, what is the equivalent material cost per unit? If 17,500 equivalent units are produced, what is the equivalent conversion cost per unit?
Medical Tape makes two products: Generic and Label. It estimates it will produce 423,694 units of Generic and 652,200 of Label, and the overhead for each of its cost pools is as follows: It has also estimated the activities for each cost driver as follows: How much is the overhead allocated to each unit of Generic and Label?
The following product Costs are available for Haworth Company on the production of chairs: direct materials, $15,500; direct labor, $22.000; manufacturing overhead, $16.500; selling expenses, $6,900; and administrative expenses, $15,200. What are the prime costs? What are the conversion costs? What is the total product cost? What is the total period cost? If 7,750 equivalent units are produced, what is the equivalent material cost per unit? If 22,000 equivalent units are produced, what is the equivalent conversion cost per unit?
Assume you are the department B manager for Marleys Manufacturing. Marleys operates under a cost-based transfer structure. Assume you receive the majority of your raw materials from department A, which sells only o department B (they have no outside sales). After calculating the operating income in dollars and operating income in percentage, analyze the following financial information to determine costs that may need further investigation. (Hint: It may be helpful to perform a vertical analysis.)
Epsilon Corporation has two products with the following resource requirements and related costs: Total Costs Product X Product Y Total Equipment Set Ups Raw Material Orders P 300,000 250,000 400 200 600 200 50 250 Units produced If Epsilon originally allocated the aforementioned overhead costs based on units produced, how much would a unit of Product X absorb more/(less) under AB Costing? 50,000 200,000 250,000
Problem 8: Compute for the total cost of producing product Y if joint costs are allocated based on the number of units produced. SAMCIS Company produces three products (X, Y, and Z) in a joint process costing P100,000 The products can be sold as they leave the process, or they can be processed further and sold The cost accountant has provided you with the following information: Sales Price Separable Further Sales Price After Further Processing Product Unit Volume at Split-Off Processing Costs 3,000 4,000 8,000 Assume that all processing costs are variable costs. P10 P60,000 50,000 P25 Y. 15 30 20 90,000 35
Chrzan, Incorporated, manufactures and sells two products: Product EO and Product NO. Data concerning the expected production of each product and the expected total direct labor-hours (DLHs) required to produce that output appear below: Product E0 Product Ne Total direct labor-hours Activity Cost Pools Labor-related Production orders Order size The company is considering adopting an activity-based costing system with the following activity cost pools, activity measures, and expected activity: Estimated Overhead Cost Multiple Choice $33.94 per MH $54.20 per MH Direct Expected Labor-Hours Production Per Unit 10.1 410 1,550 9.1 $51.98 per MH $21.40 per MH Activity Measures DLHS orders MHs Total Direct Labor- Hours $ 301,890 61,087 585,366 $948,343 The activity rate for the Order Size activity cost pool under activity-based costing is closest to: 4,141 14, 105 18,246 Product E 4,141 850 5,550 Expected Activity Product NO 14, 105 950 5,250 Total 18,246 1,800 10,800
Ayala Inc. has conducted the following analysis related to its product lines, using a traditional costing system (volume-based) and an activity-based costing system. Both the traditional and the activity-based costing systems include direct materials and direct labor costs.Products Sales Revenue Traditional ABC Product 540x $180,000 $55,000 $50,000 Product 137Y 160,000 50,000 35,000 Product 249S 70,000 15,000 35,000(a) For each product line, compute operating income using the traditional costing system. (b) For each product line, compute operating income using the activity-based costingsystem. (c) Using the following formula, compute the percentage difference in operating incomefor each of the product lines of Ayala: [Operating Income (ABC) − Operating Income(traditional cost)] ÷ Operating Income (traditional cost). (Round to two decimals.) (d) Provide a rationale as to why the…
Kimball Company has developed the following cost formulas: Material usage: Ym = $80X; r = 0.95 Labor usage (direct): Yl = $21X; r = 0.96 Overhead activity: Yo = $358,000 + $100X; r = 0.72 Selling activity: Ys = $46,000 + $14X; r = 0.93 where X = Direct labor hours The company has a policy of producing on demand and keeps very little, if any, finished goods inventory (thus, units produced equals units sold). Each unit uses one direct labor hour for production. The president of Kimball Company has recently implemented a policy that any special orders will be accepted if they cover the costs that the orders cause. This policy was implemented because Kimball's industry is in a recession and the company is producing well below capacity (and expects to continue doing so for the coming year). The president is willing to accept orders that minimally cover their variable costs so that the company can keep its employees and avoid layoffs. Also, any orders above variable costs will increase…
The Chasis Division provides frames for the Tractor Division of a company. The standard unit costs for the Chasis Division are as follows: Direct materials $ 800 Direct labor 1,500 Variable overhead 400 Fixed overhead 350 Market price per unit 4,575 What is the transfer price based on full cost plus a markup of 20 percent?
Scottsdale Manufacturing is organized into two divisions: Fabrication and Assembly. Components transferred between the two divisions are recorded at a predetermined transfer price. Standard variable manufacturing cost per unit in the Fabrication Division is $350. At the present time, this division is working to capacity. Fabrication estimates that the units it produces could be sold on the external market for $580. The product under consideration is viewed as a commodity-type product, with no differentiating features or characteristics. Required: 2. Based on the general transfer pricing rule presented in the chapter, what is the minimum transfer price between units when the Fabrication Division is working to capacity? 3. What if the Fabrication Division had excess capacity? How would this change the minimum transfer price as determined by the application of the general transfer pricing rule?
Chapter: Traditional Performance Measurement Systems & Transfer Pricing (Managerial Accounting) Q) Spark Ltd has two divisions, assembly and electrical. The assembly division transfers partially completed components to the electrical division at predetermined transfer price. The assembly division’s standard variable production cost per unit is $550. This division has spare capacity, and it could sell all its components to outside buyers at $680 per unit in a perfectly competitive market. Requirement: Explain how negotiation between the supplying and buying units may be used to set transfer prices. How does this relate to the general transfer pricing rule? (Max 200 words)