Chapter 12 Homework

Chapter 12 Homework - Accounting 225 Managerial Accounting...

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Acc ! nting 225 M. Novack Accounting 225 Managerial Accounting Fall 2008 Michael Novack Homework Chapter 12
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Acc ! nting 225 M. Novack Exercise 12-4 1. The lowest acceptable transfer price from the perspective of the selling division is given by the following formula: There is no idle capacity, so each of the 20,000 units transferred from Division X to Division Y reduces sales to outsiders by one unit. The contribution margin per unit on outside sales is $20 (= $50 – $30). The buying division, Division Y, can purchase a similar unit from an outside supplier for $47. Therefore, Division Y would be unwilling to pay more than $47 per unit. The requirements of the two divisions are incompatible and no transfer will take place. 2. In this case, Division X has enough idle capacity to satisfy Division Y’s demand. Therefore, there are no lost sales and the lowest acceptable price as far as the selling division is concerned is the variable cost of $20 per unit. The buying division, Division Y, can purchase a similar unit from an outside supplier for $34. Therefore, Division Y would be unwilling to pay more than $34 per unit. In this case, the requirements of the two divisions are compatible and a transfer will hopefully take place at a transfer price within the range:
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Acc ! nting 225 M. Novack Exercise 12-8 1. Computation of ROI. Division A: Division B: Division C: 2 Division A Division B Division C ..... Average operating assets $1500000 $5000000 $2000000 ........ Required rate of return × 15% × 18% × 12% ... Required operating income $225000 $900000 $240000 ....... Actual operating income $300000 $900000 $180000 Required operating income ............................ (above) 225000 900000 240000 .................. Residual income $75000 $0 ($60000) Continued
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Acc ! nting 225 M. Novack Exercise 12-8 3 a. and b. Division A Division B Division C ... Return on investment (ROI) 20% 18% 9% Therefore, if the division is presented with an investment opportunity yielding 17%, it
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Chapter 12 Homework - Accounting 225 Managerial Accounting...

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