Transfer pricing Mogi Corp, manufactures one primary product, which is processed through two divisions (P and R). Costs for each division are: PR Variable cost per galion $3 $15 Fixed cost per gallon* 2 12 *Based on production of 45,000 and 72,000 gallons for P and R respectively. P Division produces 45,000 gallons per month. R Division uses 72,000 gallons per month; of that, 45,000 gallons are purchased internally and 27,000 are purchased externally at $10 per gallon. After processing through R Division, a gallon of final product can be sold for $55. a. What would be P's transfer price to R Division if the price is set at 180 percent of variable cost? $ b. What would be P's transfer price to R Division if the price is set at 130 percent of full cost? $ c. What would be P's transfer price to R Division if the price is set at market value? $

Transfer pricing Mogi Corp, manufactures one primary product, which is processed through two divisions (P and R). Costs for each division are: PR Variable cost per galion $3 $15 Fixed cost per gallon* 2 12 *Based on production of 45,000 and 72,000 gallons for P and R respectively. P Division produces 45,000 gallons per month. R Division uses 72,000 gallons per month; of that, 45,000 gallons are purchased internally and 27,000 are purchased externally at $10 per gallon. After processing through R Division, a gallon of final product can be sold for $55. a. What would be P's transfer price to R Division if the price is set at 180 percent of variable cost? $ b. What would be P's transfer price to R Division if the price is set at 130 percent of full cost? $ c. What would be P's transfer price to R Division if the price is set at market value? $

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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Transfer pricingMogi Corp. manufactures one primary product, which is processed through two divisions (P and R). Costs for each division are: P R Variable cost per gallon $3 $15 Fixed cost per gallon* 2 12 * Based on production of 25,000 and 40,000 gallons for P and R respectively. P Division produces 25,000 gallons per month. R Division uses 40,000 gallons per month; of that, 25,000 gallons are purchased internally and 15,000 are purchased externally at $10 per gallon. After processing through R Division, a gallon of final product can be sold for $55.a. What would be P’s transfer price to R Division if the price is set at 180 percent of variable cost? Answer: 5.4 b. What would be P’s transfer price to R Division if the price is set at 130 percent of full cost? Answer: 6.5 c. What would be P’s transfer price to R Division if the price is set at market value? Answer: 10 d. What is Mogi Corp.’s operating profit if all 40,000 gallon of final product can be sold for $55…
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