(d) If HHSB has acquired SSSB, the supply of material from SSSB to HHSB will be atmarket price, rather than at full manufacturing cost, because the management believe itis better for divisional performance measurement purposes.State your opinion with THREE (3) reasons whether you agree or not with thetransfer at market price.(i)Describe TWO (2) other methods that HHSB can use to set transfer price otherthan full manufacturing cost and market price.(ii) Home Healthy Sdn Bhd (HHSB) is a division that produces medical equipment for stay-at-home patient. Currently, HHSB is evaluated based on return on investment. The desired rateof return is 20%. Any divisions that reported an increase in ROI will automatically eligible foryearly bonus. Those divisions reporting a decline in ROI must justify and provide reasonableand convincing explanations in order to be eligible for bonus. However, the bonus is limited toonly 50% of the bonus paid to divisions reporting an increase in ROI.Recently, Syarikat Sihat Sdn Bhd (SSSB), one of the largest companies in leasing medicalequipment is looking for a potential buyer. HHSB's top management believed that SSSB'sassets could be acquired for an investment of RMI,600,000 and thus has strongly urged thedivision manager to consider acquiring SSSB.The division manager reviewed the company financial statements and believed that theacquisition may not be the best interest of his division. But, if he decides not to acquire SSSB,the top management is not going to be happy. Thus, he plans to propose to the top managementof HHSB to consider changing the bonus policy that based on residual income (RI) as the basiswith the 15 percent cost of capital.The following data are gathered from the financial statements of HHSB and SSSB for previousyear:HHSBSSSB(RM 000)(RM 000)Sales4,750Leasing revenueVariable expensesFixed expensesCurrent assetsNon-current assets1,5506503,0007501,1502,850700600950550Current liabilitiesLong-term liabilitiesEquity stock1,9001,400425600475

(d) If HHSB has acquired SSSB, the supply of material from SSSB to HHSB will be at market price, rather than at full manufacturing cost, because the management believe it is better for divisional performance measurement purposes. (i) State your opinion with THREE (3) reasons whether you agree or not with the transfer at market price. Describe TWO (2) other methods that HHSB can use to set transfer price other than full manufacturing cost and market price. (ii)

(d) If HHSB has acquired SSSB, the supply of material from SSSB to HHSB will be at market price, rather than at full manufacturing cost, because the management believe it is better for divisional performance measurement purposes. (i) State your opinion with THREE (3) reasons whether you agree or not with the transfer at market price. Describe TWO (2) other methods that HHSB can use to set transfer price other than full manufacturing cost and market price. (ii)

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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