UNIVERSITYRequired:a. What is the profit for each division if the external demand per period for the componentsthat are made by L Division is:i.15,000 componentsii.19,000 componentsiii.35,000 componentsb. Assuming G Division ignored the transfer pricing policy of the Group and purchased the20,000 components for £170 externally, Calculate the financial impact on the Group takinginto consideration the three levels of demand (15,000;19,000 and 35,000 components)c. Briefly explain Two attributes of a good transfer pricing policy. Question 1LG group of companies is made up of two divisions, L and G. L division manufactures acomponent which it sells to G division and other customers externally. The followinginformation relates to L Division:Market price per component£200Variable cost per component£105Fixed costs£1,375,000 per period20,000 component per periodDemand from G DivisionCapacity35,000 component per periodG division sells another product which it assembles to other external customers. Toassemble the product it requires two components manufactured by L division.The following information relates to G Division:£800Selling price per unitVariable cost per unit:To be calculatedTwo components from L2@transfer price£250Other variable costsFixed variable costs£900,000 per periodDemand10,000 units per periodCapacity10,000 units per periodGroup Transfer Pricing Policy●Transfers must be at opportunity cost• G must buy the components from L

Divisions or departments are the different units of a company. One division may need the product…

Required: a. What is the profit for each division if the external demand per period for the components that are made by L Division is: i. 15,000 components ii. 19,000 components iii. 35,000 components b. Assuming G Division ignored the transfer pricing policy of the Group and purchased the 20,000 components for £170 externally, Calculate the financial impact on the Group taking into consideration the three levels of demand (15,000;19,000 and 35,000 components) c. Briefly explain Two attributes of a good transfer pricing policy.

Required: a. What is the profit for each division if the external demand per period for the components that are made by L Division is: i. 15,000 components ii. 19,000 components iii. 35,000 components b. Assuming G Division ignored the transfer pricing policy of the Group and purchased the 20,000 components for £170 externally, Calculate the financial impact on the Group taking into consideration the three levels of demand (15,000;19,000 and 35,000 components) c. Briefly explain Two attributes of a good transfer pricing policy.

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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Decision on Transfer Pricing
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