Homework Answers
Answer: cost plus
The manager should prefer the cost-plus approach of transfer pricing. In this system, semi-finished goods are transferred from one division to other division. Once B receives semi-finished goods from A, it will be added with various costs of B (like material cost, labor cost, and overhead cost) and then a profit margin. The aggregate of such additional amount except the transfer price from A indicates the responsibility of B, which is the base for bonus calculation of B’s manager.
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Exercise 11-3 (Static) Transfer Pricing Basics [LO11-3] Sako Company’s Audio Division produces a speaker that is...
Exercise 11-3 (Static) Transfer Pricing Basics [LO11-3]
Sako Company’s Audio Division produces a speaker that is used by
manufacturers of various audio products. Sales and cost data on the
speaker follow:
Selling price per unit on the intermediate market
$
60
Variable costs per unit
$
42
Fixed costs per unit (based on capacity)
$
8
Capacity in units
25,000
Sako Company has a Hi-Fi Division that could use this speaker in
one of its products. The Hi-Fi Division will...
Henderson Company manufactures electronics. The Calculator Division (an investment center) manufactures handheld calculators. The division can...
Henderson Company manufactures electronics. The Calculator Division (an investment center) manufactures handheld calculators. The division can purchase the batteries used in the calculators from the Battery Division (another investment center) or from an outside vendor. The cost to purchase batteries from the outside vendor is $5. The transfer price to purchase from the Battery Division is $6. The Battery Division also sells to outside customers. The sales price is $6, and the variable cost is $3. The Battery Division has...
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Henderson Company manufactures electronics. The Calculator Division (an investment center) manufactures handheld calculators. The division can purchase the batteries used in the calculators from the Battery Division (another investment center) or from an outside vendor. The cost to purchase batteries from the outside vendor is $5. The transfer price to purchase from the Battery Division is $6. The Battery Division also sells to outside customers. The sales price is $6, and the variable cost is $3. The Battery Division has...
Exercise 11-3 (Static) Transfer Pricing Basics [LO11-3]
Sako Company’s Audio Division produces a speaker that is used by
manufacturers of various audio products. Sales and cost data on the
speaker follow:
Selling price per unit on the intermediate market
$
60
Variable costs per unit
$
42
Fixed costs per unit (based on capacity)
$
8
Capacity in units
25,000
Sako Company has a Hi-Fi Division that could use this speaker in
one of its products. The Hi-Fi Division will...
Henderson Company manufactures electronics. The Calculator Division (an investment center) manufactures handheld calculators. The division can purchase the batteries used in the calculators from the Battery Division (another investment center) or from an outside vendor. The cost to purchase batteries from the outside vendor is $5. The transfer price to purchase from the Battery Division is $6. The Battery Division also sells to outside customers. The sales price is $6, and the variable cost is $3. The Battery Division has...
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