27 - 22-29 (Cont'd.) 3. Transfers at 150% of 1. Tuna...

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Unformatted text preview: 22-29 (Cont'd.) 3. Transfers at 150% of 1. Tuna Harvesting Division Division revenues $0.90, $1, 1,000 pounds of raw tuna Deduct: Division variable costs $0.20 1,000 pounds of raw tuna Division fixed costs $0.40 1,000 pounds of raw tuna Division operating income 2. Method A Internal Transfers at Market Full Costs Method B Internal Price $ 900 $1,000 200 400 $ 300 200 400 $ 400 Tuna Processing Division Division revenues $5 500 pounds of processed tuna Deduct: Transferred-in costs $0.90, $1, 1,000 pounds of processed tuna Division variable costs $0.80 500 pounds processed tuna Division fixed costs $0.60 500 pounds processed tuna Division operating income $2,500 $2,500 900 400 300 $ 900 1,000 400 300 $ 800 Bonus paid to division managers at 10% of division operating income will be as follows: Method A Internal Transfers at 150% of Full Costs Harvesting Division manager's bonus (10% $300; 10% $400) Method B Internal Transfers at Market Prices $30 $40 Processing Division manager's bonus (10% $900; 10% $800) 90 80 The Harvesting Division manager will prefer Method B (transfer at market prices) because this method gives $40 of bonus rather than $30 under Method A (transfer at 150% of full costs). The Processing Division manager will prefer Method A because this method gives $90 of bonus rather than $80 under Method B. ...
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27 - 22-29 (Cont'd.) 3. Transfers at 150% of 1. Tuna...

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