The starter motors sell for 75 and the starter

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The starter motors sell for $75, and the Starter Division is currently operating at a level of 16,000 direct labour hours for the year. All transfers within Johnson are made at market price. If mutually agreed upon, the divisional managers are permitted to negotiate a transfer price. The Motor Division (which is the only division within Johnson that purchases starter motors from the Starter Division) currently purchases 1,000 starter motors from the Starter Division at the market price. The divisional manager of the Motor Division indicates that she can purchase the starters from a foreign supplier for $65 (translated to Canadian $ at the current exchange rate). Because she is free to select a supplier, she has indicated that she would like to negotiate a new transfer price with the Starter Division. The manager of the Starter Division (who has a reputation of being honest), believes that the foreign supplier is attempting to A buy into @ the starter motor market by selling the starters at an excessively low price. Required: a. What type of A responsibility centre @ should the Starter Division be designated as. Provide an explanation for your answer. (2 marks) b. From the perspective of Johnson Electric Motors , ignoring qualitative factors, should the Motor Division purchase the starters internally or externally? SHOW YOUR CALCULATIONS. (6 marks) c. From the perspective of the Starter Division , should it match the foreign supplier = s price? SHOW YOUR CALCULATIONS OR PROVIDE AN EXPLANATION. (2 marks) d. What two qualitative factors should the Motor Division take into consideration prior to finalizing their decision? (4 marks) e. What is the A minimum transfer price @ per unit that the Starter Division should charge if the Motor Division wanted to purchase 2,000 additional starter motors from the Starter Division. (Assume that the new order is A all or none @ -i.e., Motor Division will not accept to buy any less than 2,000 starters.) (5 marks)
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5 Question 5 (25 marks; suggested time 33 minutes) Standard Costing and Flexible Budgets Bobolina, Inc. makes a high end Italian hand bag. In December 2005, the management team collaborated on the preparation of a master budget for the year 2006. The budgeted costs were used as the basis for updating Bobolina’s standard costing system. No further updates of standard costs took place in the year 2006. The budgeted and actual results for the year 2006 were: Master Actual Budget Results Sales revenue $4,120,000 $4,620,375 Direct material purchases 1,200,000 1,386,482 Direct labor costs 515,200 539,181 Machine depreciation 816,500 940,000 Supervisors’ salaries - plant 341,000 368,600 Selling and administrative salaries 425,000 430,000 Net income $ 822,300 $ 956,112 Other information: Unit sales 80,000 bags 83,250 bags Machine hours 33,600 hours 31,250 hours Direct material used (sheets of leather) 4,000 sheets 4,247 sheets Direct labor hours 22,400 hours 21,567 hours There were no beginning or ending inventories of raw materials, WIP or finished goods.
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