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  • Problem 1

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    Heaven Heart
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    The Harem Corporation consists of a Mining division and Builders division. The Mining division produces black steel for $2 per unit in variable costs and sells outside the company for $4 per unit. The Builders division can buy black steel from others for $4 per unit or from Mining for the optimal transfer price. The optimal transfer price is $4 per unit. The Chips Division produces circuit boards for $90 each that it can sell to the Compo Division or outside customers. Last year it produced 20,000 boards and sold 16,000 outside and 4,000 to Compo. If Chips sells 1,000 more boards to Compo instead of outside customers, its profit increases by $35,

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    The Harem Corporation consists of a Mining division and Builders division. The Mining division produces black steel for $2 per unit in variable costs and sells outside the company for $4 per unit. The Builders division can buy black steel from others for $4 per unit or from Mining for the optimal transfer price. The optimal transfer price is $4 per unit. The Chips Division produces circuit boards for $90 each that it can sell to the Compo Division or outside customers. Last year it produced 20,000 boards and sold 16,000 outside and 4,000 to Compo. If Chips sells 1,000 more boards to Compo instead of outside customers, its profit increases by $35,

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    © All Rights Reserved
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    9 views2 pages

    Problem 1

    Uploaded by

    Heaven Heart
    The Harem Corporation consists of a Mining division and Builders division. The Mining division produces black steel for $2 per unit in variable costs and sells outside the company for $4 per unit. The Builders division can buy black steel from others for $4 per unit or from Mining for the optimal transfer price. The optimal transfer price is $4 per unit. The Chips Division produces circuit boards for $90 each that it can sell to the Compo Division or outside customers. Last year it produced 20,000 boards and sold 16,000 outside and 4,000 to Compo. If Chips sells 1,000 more boards to Compo instead of outside customers, its profit increases by $35,

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Flag for inappropriate content
    of 2

    Problem 1

    Harem Corporation consists of two divisions, Mining and Builders. The mining makes black steels, a
    product that can be used in the product that the Builders division makes. Both divisions are considered
    profit centers. The following data are available concerning black steel and the two divisions:

    Mining Builders

    Average units produced 150000

    Average units sold 150000

    Variable manufacturing cost per unit 2

    Variable finishing cost per unit 5

    Fixed divisional costs 75000 125000

    The mining division can sell all of its output outside the company for 4 per unit. The builders division can
    buy the black steel from other firms for P4. The builders division sells its products for P12.

    What is the optimal transfer price in this case?

    Problem 2

    Chips Division manufacturers electronic circuit boards. The boards can be sold either to Compo Division
    of the same company or to outside customers. Last year, the following activity occurred in Chips
    Division:

    Selling price per circuit board 125

    Production cost per circuit board 90

    Number of circuit boards:

    Produced during the year 20000

    Sold to outside customers 16000

    Sold to Compo Division 4000

    Sales to Compo Division were at the same price as sales to outside customers. The circuit boards
    purchased by Compo Division were used in an electronic instrument manufactured by that division (one
    board per instrument). Compo Division incurred P100 in additional cost per instrument and then sold
    the instrument for P300 each.
    Assume that Chips Division’s manufacturing capacity is 20000 circuit boards. Next year Compo Division
    wants to purchase 5000 circuits board from Chips Division rather than 4000. (Circuit boards of this type
    are not available from outside sources.)

    5. What is the increase/ decrease in profit if Chips Division sell 1000 additional circuit boards to
    Compo Division instead of outside?

    6. Assume that a transfer for additional 1000 units be produced by requiring its workers to work
    overtime. Chips Division indicated that the transfer price may be unreasonably high because of the
    overtime premium. What is the maximum transfer that Compo Division will accept for the additional
    1000 units?

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