uld of Ajax Division of Soap Corporation produces soap, 20 percent of which are sold to Axion Division of Soap Corporation. The remainder is sold to outside customers. SoapP treats its divisions as profit centers and allows division managers to choose their sources of sale and the supply. Corporate policy requires that all interdivisional sales and purchases be recorded at variable cost as transfer price. Aiax Division's estimated sales and standard cost data for the year ending December 31, 2000, based on capacity of 100,000 units, are as follows: Axion Outsiders P8,000,000 (3,6000,00) (1,200,000) 320,0000 80,000 Sales P900,000 (P900,000) (300,000) (300,000) 20,000 Variable costs Fixed costs Gross margin Unit sales price of P75 per unit. Axion can purchase its requirements from an outside supplier at a price of P85 per unit. Required: Ajax has an opportunity to sell the 20,000 units shown above to an outside customer at a 1. Assuming that Ajax Division desires to maximize its gross margin, should Ajax take on the new customer and drop its sales to Axion in the current year? Why? 2. Assume, instead, that Soap Corporation permits division managers to negotiate the transfer price for the year. The managers agreed on a tentative transfer price of P75 per unit, to be reduced based on an equal sharing of the additional gross margin to Ajax resulting from the sale to Axion of 20,000 units at P75 per unit. What would be the actual transfer price for the year? 3. Assume now that Ajax Division has an opportunity to sell the 20,000 units that Axior Division would buy to the same customers that are buying the other 80,000 uni produced by Ajax. Ajax Division could sell all 100,000 units to outside customers a price of P100. What actions by each division manager are in the best interest Soap Corporation?
uld of Ajax Division of Soap Corporation produces soap, 20 percent of which are sold to Axion Division of Soap Corporation. The remainder is sold to outside customers. SoapP treats its divisions as profit centers and allows division managers to choose their sources of sale and the supply. Corporate policy requires that all interdivisional sales and purchases be recorded at variable cost as transfer price. Aiax Division's estimated sales and standard cost data for the year ending December 31, 2000, based on capacity of 100,000 units, are as follows: Axion Outsiders P8,000,000 (3,6000,00) (1,200,000) 320,0000 80,000 Sales P900,000 (P900,000) (300,000) (300,000) 20,000 Variable costs Fixed costs Gross margin Unit sales price of P75 per unit. Axion can purchase its requirements from an outside supplier at a price of P85 per unit. Required: Ajax has an opportunity to sell the 20,000 units shown above to an outside customer at a 1. Assuming that Ajax Division desires to maximize its gross margin, should Ajax take on the new customer and drop its sales to Axion in the current year? Why? 2. Assume, instead, that Soap Corporation permits division managers to negotiate the transfer price for the year. The managers agreed on a tentative transfer price of P75 per unit, to be reduced based on an equal sharing of the additional gross margin to Ajax resulting from the sale to Axion of 20,000 units at P75 per unit. What would be the actual transfer price for the year? 3. Assume now that Ajax Division has an opportunity to sell the 20,000 units that Axior Division would buy to the same customers that are buying the other 80,000 uni produced by Ajax. Ajax Division could sell all 100,000 units to outside customers a price of P100. What actions by each division manager are in the best interest Soap Corporation?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Ajax Division of Soap Corporation produces soap, 20 percent of which are sold to Axion
Division of Soap Corporation. The remainder is sold to outside customers. Soap treats its
divisions as profit centers and allows division managers to choose their sources of sale and
supply. Corporate policy requires that all interdivisional sales and purchases be recorded at
variable cost as transfer price. Ajax Division's estimated sales and standard cost data for the
year ending December 31, 2000, based on capacity of 100,000 units, are as follows:
2.11
pet to the
ses and
Outsiders
Axion
Xis
P8,000,000
Sales
P900,000
(3,6000,00)
(1,200,000)
320,0000
80,000
xP25
(P900,000)
(300,000)
(300,000)
20,000
Variable costs
Fixed costs
Gross margin
Unit sales
price of P75 per unit. Axion can purchase its requirements from an outside supplier at a price of
P85 unit.
Ajax nas an opportunity to sell the 20,000 units shown above to an outside customer at a
1. Assuming that Ajax Division desires to maximize its gross margin, should Ajax take
on the new customer and drop its sales to Axion in the current year? Why?
2. Assume, instead, that Soap Corporation permits division managers to negotiate the
transfer price for the year. The managers agreed on a tentative transfer price of P75
per unit, to be reduced based on an equal sharing of the additional gross margin to
Ajax resulting from the sale to Axion of 20,000 units at P75 per unit. What would be
the actual transfer price for the year?
3. Assume now that Ajax Division has an opportunity to sell the 20,000 units that Axion
Division would buy to the same customers that are buying the other 80,000 units
produced by Ajax. Ajax Division could sell all 100,000 units to outside customers at
a price of P100. What actions by each division manager are in the best interest of
Soap Corporation?
per
Required:
S00,000
hat would
al sales of
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