PROBLEM 7 pg 514

REQUIREMENTS
1 MINIMUM TRANSFER PRICE FOR THE VALVE DIVISION-VARIABLE COST PER UNIT
MINIMUM TRANSFER PRICE FOR THE PUMP DIVISION-PURCHASE COST
ACCEPTABLE RANGE 16-29

2 Minimum transfer price in case of no excess capacity to valve division should be

more than the selling price to outside customer which is P 30
But the Pump division can purchase from the outside supplier at P 29 per vavle
the Pump division would get benefited by purchaseing from an outside supplies.
Therefore NO ACCEPTABLE RANGE.

3 Due to the reduced selling costs

VARIABLE COST ₱ 16
REDUCED SELLING COST -₱ 3
NEW TOTAL VARIABLE COST ₱ 13

As there is no excess capacity the minimum transfer pice

VARIABLE COST ₱ 13
FIXED COST ₱ 9
TOTAL MINIMUM TRANSFER PRICE ₱ 22

there is NO ACCEPTABLE RANGE for the transfer price between the two divisions.
but the minimum transfer price acceptable for both the division is P 22

4 There is not enough excess capacity. The 7000 excess capacity is not enough to meet
the 10000 units demanded by Pump Division. Hence, Valve Division must sacrifice 3000
of sales to outside customers. Hence the total contribution margin lost must be absorbed
by the units to be sold to Pump Division

LOST CONTRIBUTION MARGIN

LOST UNITS ₱ 3,000
multiply by30-16 ₱ 14
TOTAL ₱ 42,000
divided by units demanded by PUMP 10000
LOST CONTRIBUTION MARGIN PER UNIT ₱ 4.2
VARIABLE COST ₱ 16
LOWER LIMIT ₱ 20.2

THE ACCEPTABLE RANGE IS 20.2-29

5 VARIABLE COST ₱ 16
REDUCED SELLING COST -₱ 3
NEW TOTAL VARIABLE COST ₱ 13
 LOST CONTRIBUTION MARGIN
LOST UNITS ₱ 3,000
multiply by30-13 ₱ 17
TOTAL ₱ 51,000
divided by units demanded by PUMP 10000
LOST CONTRIBUTION MARGIN PER UNIT ₱ 5.1
VARIABLE COST ₱ 13
LOWER LIMIT ₱ 18.1

THE ACCEPTABLE RANGE IS 18.1-29

PROBLEM 8 pg 154
REQUIREMENT

CONTRIBUTION MARGIN FROM THE LOST SALES

REDUCTION IN UNITS ₱ 30,000
multiply by30-16 ₱ 14
TOTAL ₱ 420,000
VARIABLE COST
SPECIAL VALVES 20000
COST PER UNITS ₱ 20 ₱ 400,000
RELEVANT COSTS ₱ 820,000
divided by no. of units 20000
LOWEST ACCEPTABLE TRANSFER PRICE ₱ 41
FOR THE VALVE DIVISION

PROBLEM 11 pg 516-517

SELLING PRICE ₱ 200

EXPENSES
VARIABLE COST ₱ 110
FIXED COST ₱ 60 ₱ 170
NET OPERATING INCOME ₱ 30

currently the ASSEMBLY DIVISION BUYS:

UNITS BOUGHT 30000
COST PER UNITS 200
TOTAL COST 6000000 5400000 NET OF 10% DISCOUNT

REQUIREMENTS

1 NO, the requirements of the selling and buying divisions in this instance are incompatible. The selling
division must have a price of atleast P 200 whereas the buying division will not pay more than P 180.
An agreement to transfer the turners is extremely unlikely.
 MINIMUM TRANSFER PRICE ₱ 200
MAXIMUM TRANSFER PRICE ₱ 180

2 PROFIT OF TURNER DIVISION

SOLD UNITS 30000.00
multiply b 200-200*.90 ₱ 20
TOTAL ₱ 600,000

Profits of the Tuner division will decrease by P 600000

Profits of the Assembly division will remains unchanged
Profits of the company as a whole will decrease by P 600000

3 YES, as there is an excess of supplies the entire order from the assembly division , there is no loss
outside sales. and since the variable cost per unit is P 110 , the lowest acceptable transfer price as
far as the selling division is concerned is also P 110

4 NO, because if the the tuner division were to follow this, as the division will incure a loss of P 10
unit which is the division has a cost of P 170 as compare to selling it at P 160 per unit.

Profits of the Tuner division will decrease by P 480000

Profits of the Assembly division will remains unchanged
Profits of the company as a whole will decrease by P 480000

5 YES, Profits of the Tuner division will increase and Profits of the Assembly division will increase
then Profits of the company as a whole will increase

6 The profit of the company will by 900000

SOLD UNITS 30000

SELLING PRICE ₱ 200
COST PER UNITS ₱ 170 ₱ 30
profit ₱ 900,000
0% DISCOUNT

. The selling
than P 180.