Chapter 12 Solutions to Cornerstone Exercises

# Chapter 12 - price but Indian Division would refuse to transfer since \$720 could be earned in the outside market 2 The market price is \$720 Both

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Chapter 12 Solutions to Cornerstone Exercises Cornerstone Exercise 12–13 1. Average operating assets = Beginning assets + Ending assets 2 = \$390,000 + \$460,000 2 = \$425,000 2. Margin = Sales income Operating = \$531,250 \$63,750 = 0.12, or 12 percent 3. Turnover = assets operating Average Sales = \$425,000 \$531,250 = 1.25 4. ROI = Margin × Turnover = 0.12 × 1.25 = 0.15, or 15 percent Alternatively, ROI = assets operating Average income Operating = \$425,000 \$63,750 = 0.15, or 15 percent

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Cornerstone Exercise 12–14 1. Average operating assets = Beginning assets + Ending assets 2 = \$390,000 + \$460,000 2 = \$425,000 2. Residual income = Operating income – (Minimum rate of return × Average operating assets) = \$63,750 – (0.10 × \$425,000) = \$63,750 – \$42,500 = \$21,250 Cornerstone Exercise 12–16 1. The full cost transfer price is \$540. Maple Division would be delighted with that
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Unformatted text preview: price, but Indian Division would refuse to transfer since \$720 could be earned in the outside market. 2. The market price is \$720. Both Maple and Indian divisions would be willing to transfer at that price (since neither division would be worse off than if it bought/sold in the outside market). 3. Minimum transfer price = \$720 – \$120 = \$600 This price is set by Indian Division, the selling division. Maximum transfer price = \$720. This price is the market price and is set by Maple Division, the buying division. Yes, both divisions would be willing to accept a transfer price within the bargaining range. Precisely what the transfer price would be depends on the negotiating skills of the Indian and Maple division managers....
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## This note was uploaded on 10/20/2011 for the course ACC 222 taught by Professor Brewer during the Spring '08 term at Miami University.

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Chapter 12 - price but Indian Division would refuse to transfer since \$720 could be earned in the outside market 2 The market price is \$720 Both

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