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Mesin Trade Sdn. Bhd. has two divisions: the 'Excel' and 'Shine' divisions. Excel makes and supplies Component X to the Shine Division. The Shine Division buys Component X and converts it to the finished product, which it then sells to its extemal customers. Excel has no external customers for Component X. Expected sales of the finished product are as follows: wwwww www Net selling Sales volumes price (RM): | (Units): 100 1,000 2,000 3,000 4,000 5,000 6,000 90 80 70 60 50 The optimal level of output for Mesin Trade Sdn. Bhd. has been determined at 5,000 units and the costs of each division are: www ww m Excel Shine Variable cost per unit Fixed costs attributable to RM62,000 RM11.50 RM7.50 RM92,000 the products Based on a full cost plus mark-up policy, the transfer price of Component X has been set at RM30 per unit. Required: (a) Show computations supporting that at 5,000 units of output Mesin Trade Sdn. Bhd. will be able to maximize its profits. (b) Using the above full cost plus mark-up transfer price, show computations identifying at which level of output (in units) Excel Division will be able to maximize its profits. (c) Using the above full cost plus mark-up transfer price, show computations identifying at which level of output (in units) Shine Division will be able to maximize its profits. (d) Is there a conflict of interest between the company's and divisions' performance interests? If there is, suggest (showing relevant computations) which transfer pricing method would be suitable in solving this conflict of interest?

Mesin Trade Sdn. Bhd. has two divisions: the 'Excel' and 'Shine' divisions. Excel makes and supplies Component X to the Shine Division. The Shine Division buys Component X and converts it to the finished product, which it then sells to its extemal customers. Excel has no external customers for Component X. Expected sales of the finished product are as follows: wwwww www Net selling Sales volumes price (RM): | (Units): 100 1,000 2,000 3,000 4,000 5,000 6,000 90 80 70 60 50 The optimal level of output for Mesin Trade Sdn. Bhd. has been determined at 5,000 units and the costs of each division are: www ww m Excel Shine Variable cost per unit Fixed costs attributable to RM62,000 RM11.50 RM7.50 RM92,000 the products Based on a full cost plus mark-up policy, the transfer price of Component X has been set at RM30 per unit. Required: (a) Show computations supporting that at 5,000 units of output Mesin Trade Sdn. Bhd. will be able to maximize its profits. (b) Using the above full cost plus mark-up transfer price, show computations identifying at which level of output (in units) Excel Division will be able to maximize its profits. (c) Using the above full cost plus mark-up transfer price, show computations identifying at which level of output (in units) Shine Division will be able to maximize its profits. (d) Is there a conflict of interest between the company's and divisions' performance interests? If there is, suggest (showing relevant computations) which transfer pricing method would be suitable in solving this conflict of interest?

FINANCIAL ACCOUNTING
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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Question 3 Mesin Trade Sdn. Bhd. has two divisions: the 'Excel' and "Shine' divisions. Excel makes and supplies Component X to the Shine Division. The Shine Division buys Component X and converts it to the finished product, which it then sells to its extemal customers. Excel has no external customers for Component X. Expected sales of the finished product are as follows: www ww www Net selling Sales volumes price (RM): | (Units): 1,000 100 90 2,000 3,000 80 70 4,000 5,000 6,000 60 50 The optimal level of output for Mesin Trade Sdn. Bhd. has been determined at 5,000 units and the costs of each division are: www Excel Shine Variable cost per unit Fixed costs attributable to RM62,000 the products RM11.50 RM7.50 RM92,000 Based on a full cost plus mark-up policy, the transfer price of Component X has been set at RM30 per unit. Required: (a) Show computations supporting that at 5,000 units of output Mesin Trade Sdn. Bhd. will be able to maximize its profits. wwww (b) Using the above full cost plus mark-up transfer price, show computations identifying at which level of output (in units) Excel Division will be able to maximize its profits. (c) Using the above full cost plus mark-up transfer price, show computations identifying at which level of output (in units) Shine Division will be able to maximize its profits. (d) Is there a conflict of interest between the company's and divisions' performance interests? If there is, suggest (showing relevant computations) which transfer pricing method would be suitable in solving this conflict of interest?
Transcribed Image Text:Question 3 Mesin Trade Sdn. Bhd. has two divisions: the 'Excel' and "Shine' divisions. Excel makes and supplies Component X to the Shine Division. The Shine Division buys Component X and converts it to the finished product, which it then sells to its extemal customers. Excel has no external customers for Component X. Expected sales of the finished product are as follows: www ww www Net selling Sales volumes price (RM): | (Units): 1,000 100 90 2,000 3,000 80 70 4,000 5,000 6,000 60 50 The optimal level of output for Mesin Trade Sdn. Bhd. has been determined at 5,000 units and the costs of each division are: www Excel Shine Variable cost per unit Fixed costs attributable to RM62,000 the products RM11.50 RM7.50 RM92,000 Based on a full cost plus mark-up policy, the transfer price of Component X has been set at RM30 per unit. Required: (a) Show computations supporting that at 5,000 units of output Mesin Trade Sdn. Bhd. will be able to maximize its profits. wwww (b) Using the above full cost plus mark-up transfer price, show computations identifying at which level of output (in units) Excel Division will be able to maximize its profits. (c) Using the above full cost plus mark-up transfer price, show computations identifying at which level of output (in units) Shine Division will be able to maximize its profits. (d) Is there a conflict of interest between the company's and divisions' performance interests? If there is, suggest (showing relevant computations) which transfer pricing method would be suitable in solving this conflict of interest?
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