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152
a) net profit /net assets ROI
B $311 x 12m $23.2m 16.10%
C $292 x 12m $22.6m 15.50%

b) net profit net assests x cost of capital RI

B $311 x 12m -2320.00 1412
C $292 x 12m -2260.00 1244

c) controllable profit /net assets ROI

B 466 x 12m $23.2m 24.10%
C 472 x 12m $22.6m 25.10%

net profit net assests x cost of capital RI

466 x 12m -2320.00 3272
472 x 12m -2260.00 3404

d) net profit /net assets ROI

3864 $25.32 15.30%

net profit net assests x cost of capital RI

3864 -2532.00 1332
 net profit
600x12x108.5% 7812
134x12 -1608
6204
155x12 -1860
depreciation -480
3864
Types of Transfer Prices
1. Marginal Cost: minimum transfer price for selling spare capacity units to internal division.
2. Full Cost
3. Market Price: maximum transfer price for selling those units which aren’t from spare capacity.
4. Negotiated Price: actual transfer price.

Should divisions trade interanlly and how much units?

calculate cost to the group for both internal and external buying.
Internal
spare capacity = excess capacity which can't be sold to external consumers.
if spare capacity = marginal cost + opportunity cost (loss of contribution from external sales = 0)
if no spare capacity = Marginal cost + opportunity cost (loss of contribution from external sales)
compare the cost of internal trade with external buying cost.
external buying cost = vendor quoted price
whichever is lower, go for that.

What should be the transfer price?

seller POV
minimum transfer price
spare capacity exists = marginal cost
spare capacity doesn't exist = marginal cost + opportunity cost (loss of contribution).

buyer POV
maximum price
external vendor quote

pg. 153, Mobe Co.

answer: check day 7 of excel file on lms