QUESTION 3 CD is a producer of soft drinks, The company has two divisions: DIMision Cand Division D, Division C manufactures metal cans that are sold to Division Dland also to external customers, Division D produces soft drinks and sells them to external customers in the cans that it obtains from Division C. Division C annual budget information N$130 Market selling price per 1 000 cans N$0.04 Variable costs per can N$2.4 million Fixed costs 40 million cans Production capacity 38 million cans External demand for cans 20 million cans Demand from Division D Division D annual budget information Selling price per canned soft drink N$0.50 Other variable costs per canned soft drink (excluding the can) N$0.15 Cost of a can (from Division C) At transfer price Fixed costs N$1 750 000 Transfer Pricing Policy: Division C is required to satisfy the demand of Division D before selling cans externally. The transfer price for a can is full cost-plus 20%. REQUIRED: a) Produce the profit statement for each Division showing sales, costs and the overall total profit of CD. (show external sales and inter-divisional transfers separately where appropriate). b) Suppose Division D supplies the external market with 20 million cansland Division's demand has grown to the total production capacity of Division C from the current 20 million cans. DivisionnCexternal selling price is N$150 per 1,000 cans Calculate the minimum transfer price to Division D
QUESTION 3 CD is a producer of soft drinks, The company has two divisions: DIMision Cand Division D, Division C manufactures metal cans that are sold to Division Dland also to external customers, Division D produces soft drinks and sells them to external customers in the cans that it obtains from Division C. Division C annual budget information N$130 Market selling price per 1 000 cans N$0.04 Variable costs per can N$2.4 million Fixed costs 40 million cans Production capacity 38 million cans External demand for cans 20 million cans Demand from Division D Division D annual budget information Selling price per canned soft drink N$0.50 Other variable costs per canned soft drink (excluding the can) N$0.15 Cost of a can (from Division C) At transfer price Fixed costs N$1 750 000 Transfer Pricing Policy: Division C is required to satisfy the demand of Division D before selling cans externally. The transfer price for a can is full cost-plus 20%. REQUIRED: a) Produce the profit statement for each Division showing sales, costs and the overall total profit of CD. (show external sales and inter-divisional transfers separately where appropriate). b) Suppose Division D supplies the external market with 20 million cansland Division's demand has grown to the total production capacity of Division C from the current 20 million cans. DivisionnCexternal selling price is N$150 per 1,000 cans Calculate the minimum transfer price to Division D
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:QUESTION 3
CD Is a producer of soft drinks. The company has two divisions: Division Cand Division D. Division C manufactures
metal cans that are sold to Division Djand also to external customers. Division D produces soft drinks and sells
them to external customers in the cans that it obtains from Division C.
Division C annual budget information
N$130
Market selling price per 1 000 cans
N$0.04
Variable costs per can
N$2.4 million
Fixed costs
40 million cans
Production capacity
38 million cans
External demand for cans
20 million cans
Demand from Division D
Division D annual budget information
Selling price per canned soft drink
N$0.50
Other variable costs per canned soft drink (excluding the can)
N$0.15
Cost of a can (from Division C)
At transfer price
Fixed costs
N$1 750 000
Transfer Pricing Policy:
Division C is required to satisfy the demand of Division D before selling cans externally. The transfer price for a
can is full cost-plus 20%.
REQUIRED:
a) Produce the profit statement for each Division showing sales, costs and the overall total profit
of CD. (show external sales and inter-divisional transfers separately where appropriate).
b) Suppose Division D supplies the external market with 20 million cansland Division's demand
has grown to the total production capacity of Division C from the current 20 million cans.
DivisionCexternal selling price is N$150 per 1,000 cans Calculate the minimum transfer price
to Division D
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