Question :
154.In the process of preparing department income statements, a company : 1236789
154.In the process of preparing department income statements, a company uses there are three steps before the statements can be completed. Describe those steps.
155.What is the cycle time for a manufacturer? What does it reveal about the manufacturing process?
156.Riu Corporation has a Parts Division that does work for other Divisions in the company as well as for outside customers. The company’s Repair Division has asked the Parts Division to provide it with 2,000 special parts each year. The special parts would require $17.00 per unit in variable production costs. The Repair Division has a bid from an outside supplier for the special parts at $28.00 per unit. In order to have time and space to produce the special part, the Parts Division would have to cut back production of another part-the B83 that it presently is producing. The B83 sells for $34.00 per unit, and requires $22.00 per unit in variable production costs. Packaging and shipping costs of the B83 are $4.00 per unit. Packaging and shipping costs for the new special part would be only $0.50 per unit. The Parts Division is now producing and selling 10,000 units of the B83 each year. Production and sales of the B83 would drop by 10% if the new special part is produced for the Repair Division.
Required:
a. What is the range of transfer prices within which both the Divisions’ profits would increase as a result of agreeing to the transfer of 2,000 special parts per year from the Parts Division to the Repair Division?
b. Is it in the best interests of Riu Corporation for this transfer to take place? Explain.
a. From the perspective of the Parts Division, profits would increase as a result of the transfer if and only if: Transfer price > Variable cost + Opportunity cost
The opportunity cost is the contribution margin on the lost sales, divided by the number of units transferred: Opportunity cost = [($34.00 per unit – $22.00 per unit – $4.00 per unit) * 1,000 units*]/2,000 units = $4.00 per unit; (*10% * 10,000 units = 1,000 units)
Therefore, Transfer price > ($17.00 per unit + $0.50 per unit) + $4.00 per unit = $21.50 per unit.
From the viewpoint of the Repair Division, the transfer price must be less than the cost of buying the units from the outside supplier. Therefore, Transfer price < $28.00.
Combining the two requirements, we get the following range of transfer prices: $21.50 < Transfer price < $28.00.
b. Yes, the transfer should take place. From the viewpoint of the entire company, the cost of transferring the units within the company is $21.50, but the cost of purchasing the special parts from the outside supplier is $28.00. Therefore, the company's profits increase on average by $6.50 for each of the special parts that is transferred within the company, even though this would cut into production and sales of another product.
157.Regal Furniture Company allocates its indirect salaries of $22,500 on the basis of sales. Determine the indirect salaries allocated to Departments 1 and 2 using the following information.
158.A company rents a small building with 10,000 square feet of space for $100,000 per year. The rent is allocated to the company's three departments on the basis of the value of the space occupied by each. Department One occupies 1,500 square feet of ground-floor space, Department Two occupies 3,500 square feet of ground-floor space, and Department Three occupies 5,000 square feet of second-floor space. If rent for comparable floor space in the neighborhood averages $15.00 per sq. ft. for ground-floor space and $10.00 per sq. ft. for second-floor space, what annual rent expense should be charged to each department?
11,500$15$22,50018%$18,000
23,500$1552,50042%42,000
35,000$1050,00040%40,000
