11 - 22-20 (30 min.) Effect of alternative transfer-pricing...

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Unformatted text preview: 22-20 (30 min.) Effect of alternative transfer-pricing methods on division operating income. Internal Transfers at Market Prices Method A 1. Mining Division Revenues: $90, $661 400,000 units Deduct: Division variable costs: $522 400,000 units Division fixed costs: $83 400,000 units Division operating income Metals Division Revenues: $150 400,000 units Deduct: Transferred-in costs: $90, $66 400,000 units Division variable costs: $364 400,000 units Division fixed costs: $155 400,000 units Division operating income Internal Transfers at 110% of Full Costs Method B $36,000,000 $26,400,000 20,800,000 3,200,000 $12,000,000 20,800,000 3,200,000 $ 2,400,000 $60,000,000 $60,000,000 36,000,000 14,400,000 6,000,000 $ 3,600,000 26,400,000 14,400,000 6,000,000 $13,200,000 1 2 $66 = $60 110% Variable cost per unit in Mining Division = Direct materials + Direct manufacturing labor + 75% of Manufacturing overhead = $12 + $16 + 75% $32 = $52 Fixed cost per unit = 25% of Manufacturing overhead = 25% $32 = $8 Variable cost per unit in Metals Division = Direct materials + Direct manufacturing labor + 40% of Manufacturing overhead = $6 + $20 + 40% $25 = $36 Fixed cost per unit in Metals Division = 60% of Manufacturing overhead = 60% $25 = $15 3 4 5 ...
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This note was uploaded on 02/05/2012 for the course ACCOUNTING acct 504 taught by Professor Dehmal during the Spring '10 term at DeVry Pittsburgh.

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