Payne Ltd. has two divisions. The Compound Division makes QZ54, industrial compound, which is then transferred to the Processing Division. The Processing Division further processes the QZ54 and se the final product to customers at $87/kg Capacity in the Compound Division is 800,000kg QZ54 can be obtained on the external market $50/kg Data regarding the costs per kilogram in each division are presented below: Compound Processing Division Division Direct material Direct labour Manufacturing overhead* *In the Compound Division the variable overhead is 80% of the tota $8 $12 $28 $6 $12 $18 and in Processing variable overhead represents 65% of the total. Fixed overhead rates are based on capacity of 800,000kg in each division. In addition to the manufacturing costs, the Compound Division would incur $2 per kilogram of selling costs which would be avoide on internal transfers. Similarly the Processing Division would avoid $3/kg of ordering costs on internal purchases. Required: a. Calculate the operating incomes for each division assuming 800,000kg of QZ54 are transferred and the company uses a market transfer price. b. Calculate the operating incomes for each division assuming 800,000kg of QZ54 are transferred and the company uses a transfer pricing policy based on 125% of absorption manufacturing cost.
Payne Ltd. has two divisions. The Compound Division makes QZ54, industrial compound, which is then transferred to the Processing Division. The Processing Division further processes the QZ54 and se the final product to customers at $87/kg Capacity in the Compound Division is 800,000kg QZ54 can be obtained on the external market $50/kg Data regarding the costs per kilogram in each division are presented below: Compound Processing Division Division Direct material Direct labour Manufacturing overhead* *In the Compound Division the variable overhead is 80% of the tota $8 $12 $28 $6 $12 $18 and in Processing variable overhead represents 65% of the total. Fixed overhead rates are based on capacity of 800,000kg in each division. In addition to the manufacturing costs, the Compound Division would incur $2 per kilogram of selling costs which would be avoide on internal transfers. Similarly the Processing Division would avoid $3/kg of ordering costs on internal purchases. Required: a. Calculate the operating incomes for each division assuming 800,000kg of QZ54 are transferred and the company uses a market transfer price. b. Calculate the operating incomes for each division assuming 800,000kg of QZ54 are transferred and the company uses a transfer pricing policy based on 125% of absorption manufacturing cost.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
100%
Please help me with the attached question thank you
Transcribed Image Text:Payne Ltd. has two divisions. The Compound Division makes QZ54, a
industrial compound, which is then transferred to the Processing
Division. The Processing Division further processes the QZ54 and sel
the final product to customers at $87/kg Capacity in the Compound
Division is 800,000kg QZ54 can be obtained on the external market
$50/kg Data regarding the costs per kilogram in each division are
presented below:
Compound
Processing
Division
Division
$6
$12
$18
*In the Compound Division the variable overhead is 80% of the tota
Direct material
Direct labour
$8
$12
$28
Manufacturing overhead*
and in Processing variable overhead represents 65% of the total.
Fixed overhead rates are based on capacity of 800,000kg in each
division.
In addition to the manufacturing costs, the Compound Division
would incur $2 per kilogram of selling costs which would be avoided
on internal transfers. Similarly the Processing Division would avoid
$3/kg of ordering costs on internal purchases.
Required:
a. Calculate the operating incomes for each division assuming
800,000kg of QZ54 are transferred and the company uses a market
transfer price.
b. Calculate the operating incomes for each division assuming
800,000kg of QZ54 are transferred and the company uses a transfer
pricing policy based on 125% of absorption manufacturing cost.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 3 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education