Fundamentals of Cost Accounting
Fundamentals of Cost Accounting
5th Edition
ISBN: 9781259565403
Author: William N. Lanen Professor, Shannon Anderson Associate Professor, Michael W Maher
Publisher: McGraw-Hill Education
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Chapter 15, Problem 41P

Weaver, Inc., is a large consumer products company, which manufactures health and beauty products sold at grocery and drug stores throughout the country. Gamma Division does both manufacturing and shipping and operates a warehouse and transportation activity in a central location. Gamma loads trucks with products and ships the products using third-party trucking companies to its regional distribution centers.

Weaver recently started a new enterprise, Nu, which would focus on logistics alone, providing transportation services to both other Weaver divisions and third parties. The manager of Nu proposes using the warehouse facility of Gamma, at least to start. Employees of Gamma would load the trucks for the Nu business as well as the Gamma business.

All divisions at Weaver are treated as profit centers with managers evaluated on division profit. The best estimates of the current activity and costs of Gamma Division follow:

Chapter 15, Problem 41P, Weaver, Inc., is a large consumer products company, which manufactures health and beauty products

Required

  1. a.      The current activity estimated for Nu Division is 5,000 cases. The company has asked you to recommend a transfer price policy to implement. What transfer price would you recommend? Why?
  2. b.      How would the division manager for Gamma Division likely respond? How would you answer?
  3. c.       Another manager has identified another opportunity and also proposes using the Gamma Division facility. Estimated activity for this third division is expected to be 7,500 cases. How would you modify, if at all, your recommendation in requirement (a)?
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Bella Brands operates with two divisions, Aftershave and Deodorant. The Aftershave Division produces a chemical that the Deodorant Division also uses. The Aftershave Division also sells this chemical to other firms for $10 per ounce. The cost information for the Aftershave Division is as follows:  Variable costs per ounce $ 6.00   Fixed costs per ounce $ 15.00   Monthly production capacity 30,000 ounces If the Aftershave Division is not operating at full capacity and is able to supply the Deodorant Division with its needs for the chemical, what is the minimum transfer price that the Aftershave Division will accept?   Multiple Choice   None of the choices is correct.   $10.00 per ounce   $6.00 per ounce   $15.00 per ounce   $3.00 per ounce
Brar Incorporated supplied the following financial information for analysis:   Depreciable assets (purchased at the beginning of year 1) $ 4,500,000 Profits before depreciation (all in cash flows at end of year):   Year 1 960,000 Year 2 1,400,000 Year 3 2,100,000 Replacement cost of depreciable assets at end of:   Year 1 $ 5,000,000 Year 2 6,200,000 Year 3 7,600,000   The assets are depreciated at a rate of 12% per year and have no salvage value. What is the ROI for year 2 using historical cost, net book value?   Multiple Choice   26.60%   24.72%   25.15%   22.64%   None of these.
Bella Brands operates with two divisions, Aftershave and Deodorant. The Aftershave Division produces a chemical that the Deodorant Division also uses. The Aftershave Division also sells this chemical to other firms for $27 per ounce. The cost information for the Aftershave Division is as follows:  Variable costs per ounce $ 6.00   Fixed costs per ounce $ 15.00   Monthly production capacity 30,000 ounces If the Aftershave Division is operating at full capacity and can sell all of the chemical that it can produce, what is the minimum transfer price that the Aftershave Division will accept?   Multiple Choice   None of the choices is correct.   $6.00 per ounce   $21.00 per ounce   $15.00 per ounce   $27.00 per ounce

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Fundamentals of Cost Accounting

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