Dickson Group has two divisions. The following statement shows the financial result of each division for the year ended 2020. Year 2020 Division B Division A Equipment B 72,000 units $00 Component A 140,000 units $000 Product type Sales volume Sales revenue 720,000 (382,000)# 338,000 196,000 (140,000) 56,000 (20,000) Variable costs Contribution Fixed costs 60,000 Operating profit # include buying components from Division A. 278,000 36,000 Division A manufactures one type of component only. It sells the components to external customers and also to Division B. The following information is available: Division A Current production capacity 140,000 units Sold to Division B 72,000 units Sold to external markets 68,000 units External market demand for Component A Market price $1500 per unit 112,000 units The current policy of the group is that internal sales 72,000 units should be transferred at their opportunity cost. Consequently, some components were transferred to Division B at the market price $15 variable cost of Component A. and some were transferre at Required: (a) Prepare an analysis of the sales made by Division A that shows clearly, in units and in $, the internal and external sales made during the year 2020. Internal Sales External Sales Total Units of components Unit price $ $00 $00 $000 $000 Sales revenue (b) Assume the current transfer pricing policy continue, what is effect of increase in external sales quantity of Component A on the profits of Division A, Division B and the group respectively.
Dickson Group has two divisions. The following statement shows the financial result of each division for the year ended 2020. Year 2020 Division B Division A Equipment B 72,000 units $00 Component A 140,000 units $000 Product type Sales volume Sales revenue 720,000 (382,000)# 338,000 196,000 (140,000) 56,000 (20,000) Variable costs Contribution Fixed costs 60,000 Operating profit # include buying components from Division A. 278,000 36,000 Division A manufactures one type of component only. It sells the components to external customers and also to Division B. The following information is available: Division A Current production capacity 140,000 units Sold to Division B 72,000 units Sold to external markets 68,000 units External market demand for Component A Market price $1500 per unit 112,000 units The current policy of the group is that internal sales 72,000 units should be transferred at their opportunity cost. Consequently, some components were transferred to Division B at the market price $15 variable cost of Component A. and some were transferre at Required: (a) Prepare an analysis of the sales made by Division A that shows clearly, in units and in $, the internal and external sales made during the year 2020. Internal Sales External Sales Total Units of components Unit price $ $00 $00 $000 $000 Sales revenue (b) Assume the current transfer pricing policy continue, what is effect of increase in external sales quantity of Component A on the profits of Division A, Division B and the group respectively.
Survey of Accounting (Accounting I)
8th Edition
ISBN:9781305961883
Author:Carl Warren
Publisher:Carl Warren
Chapter14: Decentralized Operations
Section: Chapter Questions
Problem 3SEQ: Division A of Kern Co. has sales of $350,000, cost of goods sold of $200,000, operating expenses of...
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Question
I want the get the solution from requirement a to e
![Additional data for Required c, d, and e.
Division A is considering buying a new equipment to improve its current production.
This would increase production volume by 10% for each of the next five years and
also reduce its unit variable costs by 20% for all production output. The capital cost of
the new investment is $125 million and it will have no value after five years. The
group and its divisional managers evaluate investments using net present value (NPV)
with an 8% cost of capital. Assume the sales and production volume of Division B
will remain unchanged in the coming five years.
Required:
Assuming the current transfer pricing policy continues:
(c) Prepare an analysis of the sales made by Division A that shows clearly, in units
and in $, the internal and external sales if the new investment is implemented.
Internal Sales
External Sales
Total
Units of components
Unit price
24
$000
%24
$00
24
$00
$000
Sales revenue
(d) If NPV technique is used, evaluate whether Division A manager will agree to buy
the new equipment.
(e) If NPV technique is used, evaluate whether the group director will agree to buy
the new equipment.
Discount at 8%
Year 1
0.9259
Year 2
0.8573
Year 3
0.7938
Year 4
0.7350
Year 5
0.6806](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fcd7615a0-107a-485b-9460-b8b2dc746dda%2Fd68ee397-597c-4356-90ca-75088096615f%2Fsnnku_processed.png&w=3840&q=75)
Transcribed Image Text:Additional data for Required c, d, and e.
Division A is considering buying a new equipment to improve its current production.
This would increase production volume by 10% for each of the next five years and
also reduce its unit variable costs by 20% for all production output. The capital cost of
the new investment is $125 million and it will have no value after five years. The
group and its divisional managers evaluate investments using net present value (NPV)
with an 8% cost of capital. Assume the sales and production volume of Division B
will remain unchanged in the coming five years.
Required:
Assuming the current transfer pricing policy continues:
(c) Prepare an analysis of the sales made by Division A that shows clearly, in units
and in $, the internal and external sales if the new investment is implemented.
Internal Sales
External Sales
Total
Units of components
Unit price
24
$000
%24
$00
24
$00
$000
Sales revenue
(d) If NPV technique is used, evaluate whether Division A manager will agree to buy
the new equipment.
(e) If NPV technique is used, evaluate whether the group director will agree to buy
the new equipment.
Discount at 8%
Year 1
0.9259
Year 2
0.8573
Year 3
0.7938
Year 4
0.7350
Year 5
0.6806
![Question 2
Dickson Group has two divisions. The following statement shows the financial result
of each division for the year ended 2020.
Year 2020
Division B
Division A
Product type
Equipment B
Component A
Sales volume
72,000 units
140,000 units
$00
$00
Sales revenue
720,000
196,000
Variable costs
(382,000)%23
(140,000)
Contribution
338,000
56,000
Fixed costs
60,000
(20,000)
Operating profit
278,000
36,000
# include buying components from Division A.
Division A manufactures one type of component only. It sells the components to
external customers and also to Division B. The following information is available:
Division A
Current production capacity
140,000 units
Sold to Division B
72,000 units
Sold to external markets 68,000 units
External market demand for Component A
Market price $1500 per unit
112,000 units
The current policy of the group is that internal sales 72,000 units should be
transferred at their opportunity cost. Consequently, some components were
transferred to Division B at the market price $1500 and some were transferred at
variable cost of Component A.
Required:
(a) Prepare an analysis of the sales made by Division A that shows clearly, in units
and in $, the internal and external sales made during the year 2020.
Internal Sales
External Sales
Total
Units of components
$
$00
2$
$0
2$
$00
Unit price
$00
Sales revenue
(b) Assume the current transfer pricing policy continue, what is effect of increase
in external sales quantity of Component A on the profits of Division A, Division
B and the group respectively.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fcd7615a0-107a-485b-9460-b8b2dc746dda%2Fd68ee397-597c-4356-90ca-75088096615f%2F7rwcf4_processed.png&w=3840&q=75)
Transcribed Image Text:Question 2
Dickson Group has two divisions. The following statement shows the financial result
of each division for the year ended 2020.
Year 2020
Division B
Division A
Product type
Equipment B
Component A
Sales volume
72,000 units
140,000 units
$00
$00
Sales revenue
720,000
196,000
Variable costs
(382,000)%23
(140,000)
Contribution
338,000
56,000
Fixed costs
60,000
(20,000)
Operating profit
278,000
36,000
# include buying components from Division A.
Division A manufactures one type of component only. It sells the components to
external customers and also to Division B. The following information is available:
Division A
Current production capacity
140,000 units
Sold to Division B
72,000 units
Sold to external markets 68,000 units
External market demand for Component A
Market price $1500 per unit
112,000 units
The current policy of the group is that internal sales 72,000 units should be
transferred at their opportunity cost. Consequently, some components were
transferred to Division B at the market price $1500 and some were transferred at
variable cost of Component A.
Required:
(a) Prepare an analysis of the sales made by Division A that shows clearly, in units
and in $, the internal and external sales made during the year 2020.
Internal Sales
External Sales
Total
Units of components
$
$00
2$
$0
2$
$00
Unit price
$00
Sales revenue
(b) Assume the current transfer pricing policy continue, what is effect of increase
in external sales quantity of Component A on the profits of Division A, Division
B and the group respectively.
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