6. Transfer Price ComputationPakyaw Company is operating with two divisions. Division S is producing a product line that is required as acomponent part of the product being manufactured by Division B.For Division S, the costs of producing the component part per unit are:P 10Direct materialsDirect laborP8P5P2Variable factory overheadFixed factory overheadThe 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 perunit. 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 bedeveloped. It is suggested that a 40% mark-up on cost will be added when transferring the product fromDivision 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.ActivateGo to Sett

Gross profit is the measurement of profitability being calculated for the overall financial health…

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

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Related questions

Q: The Billing rate/Labor costs ratio is a billing multiple and can be used to evaluate relative…

A: The Billing rate/Labor costs ratio, referred to as the billing multiple, is a financial gauge that…

Q: In a transfer pricing decision, which of the following factors should be considered? Both A and B…

A: Transfer pricing refers to the pricing strategy and decisions made within transnational companies…

Q: What information is needed to measure the absolute profitability of a segment?

A: Absolute profitability measures are defined as the measure, which used to impact an overall profits…

Q: Describe following:* Market approach* Income approach* Cost approach

A: Market Approach: Market approach is a method used to assess the value of an asset depending on the…

Q: A is based on various commission rates for different levels of sales. a. Differential Pay b.…

A: Commission: It is an additional pay to an employee for extra work. It is based on the performance…

Q: How to obtain Gradient to equal-payment conversion? Note that A=G(A/G) formula F=P(1+i)^N ,…

A: The Gradient Arithmetic Worth is an important concept that determines the present value, annual…

Q: Explain how the lower of cost and net realizable value rule is applied to purchase commitments.

A: Purchase Commitments: It refers to the commitments or contract made by a company with its suppliers…

Q: Profit volume ratio is used for the calculation of: Select one: O a. Profit at given sales O b.…

A: The profit volume ratio is also known as contribution margin ratio.

Q: Transfer prices can be based on any of the following methods except a)variable cost…

A: Transfer prices can be based on any of the following methods except B) replacement cost

Q: Define each of the following terms.f. Conversion ratio; conversion price; conversion value

A: Answer: Conversion ratio: It is ratio of converting bonds into the common stock of the company. An…

Q: Define return on sales ( or profit margin).

A: Financial ratios represent the accounting ratios computed by the management by using elements of…

Q: Match each of the statements to the correct stem. 1. In a make or buy decision,…

A: Make or buy decision is a decision of cost benefit…

Q: Give two limitations of the physical measure method of a joint -cost allocation. Distinguish between…

A: The physical quantities method and the net realisable value method are the two main techniques for…

Q: Determining the transfer price as the price at which the product or service transferred could be…

A: Transfer pricing relates to the procedure used to establish the price of products or services traded…

Q: The three most common cost behavior classifications are a. variable costs, product costs, and sunk…

A: Cost volume profit analysis includes various techniques that help in the decision-making of the…

Q: 8. Which of the following is NOT a component of aggregate expenditure? a.Investment b.Consumption…

A: The objective of the question is to identify which among the given options is not a component of…

Q: Explain with examples these methods of transfer pricing Comparable Uncontrolled Price Method •Cost…

A: Comparable Uncontrolled Price (CUP) Method: The Comparable Uncontrolled Price (CUP) Method is a…

Q: Which one of the following is defined, at any given sales volume, as the ratio of the total…

A: Contribution margin is Sales less variable expenses at any given volume. Operating profit is…

Q: Describe the specific process required by the unit cost comparison for the use of annual worth…

A: A unit cost comparison is required for the use of annual worth analysis because companies often…

Q: 1) Cost-volume relationship states that maximum profit is reached by maximizing revenue. Select one:

A: the correct option with adequate explanation are as follows

Q: The transfer price between two internal divisions will represent O an expense, cost revenue, cost…

A: Revenue for the Selling Division -The transfer price serves as the revenue or sales amount for the…

Q: This transfer prices basis is considered to be the most inferior one a. variable cost transfer pice…

A: The concept market transfer price is more associated with transfer price in method that sells the…

Q: Joint cost CO

A: Joint cost is the cost of producing two or more products at same time.

Q: Which of the following transfer price approaches is used when the transfer price is set at the…

A: Transfer Price : Price at which related parties transact with each other is known as transfer…

Q: Explain one advantage and one disadvantage of the following transfer pricing methods: Cost Market…

A: first let us understand each of these methods briefly: Cost Method - Under this method goods are…

Q: Explain the criteria used for judging a transfer pricing system (ii) Explain the term “…

A: (i) The criteria used for judging a transfer pricing system include the following: 1.…

Q: B. In deciding a transfer pricing method, advise management on: i. negotiated transfer pricing ii.…

A: Transfer pricing is the price which is to be calculated if there is any transaction between related…

Q: Explain the relationship between contango, cost-of-carry, and convenience yield. d. Explain the…

A: A derivative contract is a financial agreement or instrument between two or more parties that…

Q: Select Among the choices, this transfer prices basis is considered as the most inferior one: a.…

A: Two or more departments of a company or interrelated companies or enterprises may transfer their…

Q: Which format of the Income Statement is appropriate for financial reporting? O Variable costing O…

A: The appropriate format for the Income Statement for financial reporting is typically the Absorption…

Q: What concept relates to the proportionate savings in costs gained when levels of production are…

A: Lets understand the meaning of all the terms given in the question. Accounting profit is a terms…

Q: The “plus” in cost-plus pricing is often referred to as Markup. Extra profit. Gross profit.…

A: Cost plus pricing means when selling price is fixed as a addition of profit on the cost price. For…

Question

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

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

SEE SOLUTION Check out a sample Q&A here

Step 1: Concept

VIEW

Step 2: Requirement 1

VIEW

Step 3: Requirement 2

VIEW

Step 4: Requirement 3

VIEW

Step 5: Requirement 4

VIEW

Solution

VIEW

Step by step

Solved in 6 steps with 6 images

SEE SOLUTION Check out a sample Q&A here

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.

Similar questions

Question Content Area The approach that requires the transfer price to be less than the market price but greater than the supplying division's variable costs per unit is called the _____ approach. a.negotiated cost b.cost price c.standard cost d.market price
A cost - based transfer price considers the cost of producing the goods when determining the price. True False
Answer two questions please 1- What is meant by Transfer price and why transfer prices are needed? 2- Distinguish between Traceable Cost and Common Cost and give examples of each.
C. Highlight ONE (1) advantage and ONE (1) disadvantage of the market-based transfer pricing method.
Which of the following equations is correct for determining the required sales in units to generate a targeted amount of pre-tax income (πB) under the equation method (where Q = sales in units, F = total fixed costs, πB = pre-tax profit, v = variable cost per unit, and p = selling price per unit)?
Consider the following two statements concerning cost-volume-profit analysis. (1) The contribution per unit is the difference between the sales price per unit and the fixed costs per unit. (2) The marginal cost per unit will usually equal the variable cost per unit. Which one of the following combinations ( true/false) relating to the above statements is correct?
Allocating costs for joint products can be done by: a. Sales Value Approach b. Contribution Margin Approach C. All Approaches are correct. d. Comparative Income Approach
Please answer questions A, B and C. thank you
Operating leverage measures the: O Change in profit when sales changes. O Change in Contibution when sales changes. O Change in BEP when fixed cost changes. O Change in BEP when sales changes.
When the selling division is a full capacity, the goal congruent transfer price will be the: market price actual full cost actual variable cost standard full cost actual variable cost plus markup
Which of the following is the most commonly used method for assignment of joint costs? a. Relative sales value b. Split-off method c. Average production cost d. Relative percentage of direct costs basis
Explain why using cost as a transfer price is inappropri-ate when the center producing the product is evaluated as a profit center.