Total _______ i) Transfer price at total production cost plus 25% mark-up: Total production cost (ED) = _____________________
Speed Control Division Toys Division BWTech Sdn Bhd ES (7,500x200) 1,500,000 ES (6,500x750) 4,875,000 6,375,000 IS (6,500x125) 812,500 812,500 2,312,500 7,187,500 Less: variable production costs (65*14k) 910,000 476*6500 3,094,000 4,004,000 FPO (35x14,000) 490,000 FPO (24x8000) 192,000 682,000 Gross profit 912,500 1,589,000 2,501,50 * Less other cost Variable selling (7500x9) 67,500 Variable selling (6500x36) 234,000 301,500 Net profit 845,000 * 1,355,000 * 2,200,000 * Net profit of Toys Division is higher than Speed Control Division indicated that Toys Division performed better than Speed Control Division. VPC for Toys Div= 187+125+108+56=476 VPC for Speed Control Div= 38+12+15=65 i) Transfer price = Market price = RM200 When TP = RM 125; Total production cost = RM476 So TP = RM200 (increased by 75) =476+75= RM551
Speed Control Division Toys Division BWTech Sdn Bhd ES (7,500x200) IS (6,500x200) 1,500,000 1,300,000 ES (6,500x750) 4,875,000 6,375,000 1,300,000 2,800,000 7,675,000 Less: variable production costs (65*14k) 910,000 551*6500 3,581,50 4,491,500 FPO / (35x14,000) 490,000 FPO (24x8000) 192,000 682,000 Gross profit 1,400,000 1,101,500 2,501,500 Less other cost Variable selling (7500x9) 67,500 Variable selling (6500x36) 234,000 301,500 Net profit 1,332,500 867,500 2,200,000 If transfer price is set at market value, profit for Speed Control Div will increased to RM1,332,500 while profit for Toys Division decreased to RM867,500. However the division still enjoys the benefits of reductions in selling expenses if they buy internally. Meanwhile profit for the company still maintained at same level as long as there is transfer of goods internally. Therefore, both division should negotiate suitable price to be set to ensure the internally transfer of goods occur for the benefit of the company as a whole.
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- Summer '17
- MISS MUZRIFAH MOHAMED