I-Asgn9 - LESSON 9 Assignment Question 1 (11 marks)...

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LESSON 9 Assignment Question 1 (11 marks) Computer question Description Refer to Computer illustration 9-1. In the Lesson Notes, the minimum transfer price is given as €0.10, but you saw that a price of €0.50 motivated the Buying division manager to set output at 500 selling units. (This was the production level that maximized firm profits.) Required What is the greatest transfer price that will still motivate the Buying division to select an output level of 500 units as the optimal choice, without question (that is, assuming a single, unique, profit-maximizing output at 500 units can be identified)? Ignore the profits earned in Selling division. Include in your answer the transfer price (to the nearest cent) and the Buying division’s profit at 500 units, using the transfer price. Hint: When calculating the solution to this problem, look at the greatest transfer price that can be used to maximize Buying division’s profit at an output level of 500 units, not the transfer price that will return the greatest profit. Procedure 1. Open the file MA1L9P1 and click the L9P1S Part B tab. 2. Enter a value higher than the transfer price €0.50 in cell B23. 3. Enter the value 100 in cell B21 and observe the value of the profits of the Buying division, Selling division, and Total firm profits. Increase the output of the Buying division by increments of 100 up to 600 units, as specified in the data table. Write down the resulting profits at the different output levels to use as a reference in the following table: Output level Buying division 100 200 300 400 500 600 Management Accounting Fundamentals Assignment 9 1
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4. If the Buying division’s profits are maximized at an output level of 500 units, enter a higher transfer price. Is profit still maximized at an output level of 500 units? 5. If the Buying division’s profits are not maximized at an output level of 500 units at the transfer price set in Step 2, then enter a lower transfer price in cell B23. 6. Repeat Steps 3-5 until you have determined the maximum transfer price that will maximize the Buying division profits. 7. Cut and paste cells A19 to H31 into Word. Question 2 (20 marks) Computer question Description Refer again to Computer illustration 9-1. Assume the demand curve of the Buying division is as follows: Quantity sold Price 100 € 2.00 200 € 1.90 300 € 1.80 400 € 1.45 500 € 1.20 600 € 1.00 Required Assuming that the output of Buying division can only be sold in one of the six quantities shown, answer the following: a. (10 marks) What is the profit-maximizing output level of Buying division and Total firm? What is the greatest transfer price at this output level that will still have the Buying division and Total firm choose this as the optimal production plan? What are the profits earned by Buying division and the firm? b.
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I-Asgn9 - LESSON 9 Assignment Question 1 (11 marks)...

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