REQUIRED: Determine Division B's gross profit per unit under each of the following independent assumptions: A) Transfer price is full-cost based. B) Transfer price is cost-based plus mark-up. C) Transfer price is based on a negotiated price. D) Transfer price is market-based. A G
REQUIRED: Determine Division B's gross profit per unit under each of the following independent assumptions: A) Transfer price is full-cost based. B) Transfer price is cost-based plus mark-up. C) Transfer price is based on a negotiated price. D) Transfer price is market-based. A G
Chapter5: Process Costing
Section: Chapter Questions
Problem 1PB: The following product costs are available for Stellis Company on the production of erasers: direct...
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![6. Transfer Price Computation
Pakyaw Company is operating with two divisions. Division S is producing a product line that is required as a
component part of the product being manufactured by Division B.
For Division S, the costs of producing the component part per unit are:
P 10
Direct materials
Direct labor
P8
P5
P2
Variable factory overhead
Fixed factory overhead
The product of Division S is being sold in a highly competitive market for P 30 per unit.
Division B is currently buying 80% of the production output of Division S at a negotiated price of P 28 per
unit. It is expected that 25,000 units of product will be produced by Division S.
With emphasis on divisional welfare rather than the company's welfare, a new transfer price must be
developed. It is suggested that a 40% mark-up on cost will be added when transferring the product from
Division S to Division B.
The unit selling price of the product of Division B is P 45 while the additional unit processing cost is P 8.
REQUIRED:
Determine Division B's gross profit per unit under each of the following independent assumptions:
A) Transfer price is full-cost based.
B) Transfer price is cost-based plus mark-up.
C) Transfer price is based on a negotiated price.
D) Transfer price is market-based.
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Transcribed Image Text:6. Transfer Price Computation
Pakyaw Company is operating with two divisions. Division S is producing a product line that is required as a
component part of the product being manufactured by Division B.
For Division S, the costs of producing the component part per unit are:
P 10
Direct materials
Direct labor
P8
P5
P2
Variable factory overhead
Fixed factory overhead
The product of Division S is being sold in a highly competitive market for P 30 per unit.
Division B is currently buying 80% of the production output of Division S at a negotiated price of P 28 per
unit. It is expected that 25,000 units of product will be produced by Division S.
With emphasis on divisional welfare rather than the company's welfare, a new transfer price must be
developed. It is suggested that a 40% mark-up on cost will be added when transferring the product from
Division S to Division B.
The unit selling price of the product of Division B is P 45 while the additional unit processing cost is P 8.
REQUIRED:
Determine Division B's gross profit per unit under each of the following independent assumptions:
A) Transfer price is full-cost based.
B) Transfer price is cost-based plus mark-up.
C) Transfer price is based on a negotiated price.
D) Transfer price is market-based.
Activate
Go to Sett
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