A and B are two divisions of a company. A makes two products, Product A and Product B. Product A is commercialised outside the company and its SP is $170. Product B is only sold to Division B, at a unit transfer price of $176. Unit costs for Product B are as follows: Variable materials - 60 Variable labour - 40 Variable overheads - 40 Fixed overheads - 20 Division B has received an offer from another company to supply a substitute for Product B, for $152 per unit. Assuming Division A can sell as much of Product A as it can produce and the unit profitability of Products A and B are equal, A. What is the minimum and maximum transfer price? B. What will be the effects on profits of the company as a whole if Division B accepts the offer?
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
A and B are two divisions of a company. A makes two products, Product A and Product B. Product A is commercialised outside the company and its SP is $170. Product B is only sold to Division B, at a unit transfer price of $176. Unit costs for Product B are as follows:
|
Variable materials - 60 |
Variable labour - 40 |
|
Variable |
Fixed overheads - 20 |
Division B has received an offer from another company to supply a substitute for Product B, for $152 per unit.
Assuming Division A can sell as much of Product A as it can produce and the unit profitability of Products A and B are equal,
A. What is the minimum and maximum transfer price?
B. What will be the effects on profits of the company as a whole if Division B accepts the offer?
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