assignment question

AF201 Assignment2 - Micro Word Aalbo AaBbc Aabbcc AaB AB Schong a ding! Nading 2 The Son N Global Tronics, Inc., manufactures a variety of printers, scanner, and tax Machines in its two divisions the Machines Division and the Parts Division. The Parts Division produces electronic Ports that can be used by the Machines Division. All the Parts this division produces can be sold to outside customers, however, from the beginning nearly 90 percent of its output has been used internally. The current policy requires that all internal transien of Parlsbe transferred at full cost Recently, SashaLebron, the chief executive officer of Global Tronic, decided to investigate the transfer pricing policy. He was concerned that the current method of pricing internaltrando might force decisions by divisional managers that would be suboptimal for the firm. As part of his inquiry, he gathered some information concerning Part 35 used by Machines Division in its production of a basle scanner, Model SC 20 The Machines Division ses 40 000 units of Model S each year of unit price of $42. Given current market conditions this is the maximum price that the division can charge for Mode SC 20 the cost of manufacturing the scanner follows: Totol unit cost The scanner is produced efficiently, and no further reduction in manufacturing costs is possible. The manager of the Parts Division indicated that she could sell 40,000 units (the division's capacity for this party of Part 35 to outside buyers at $12 per unit. The Machines Division could also buy the part for $ 12 from external suppliers. The Parts Division manager supplied the following details on the manufacturing cost of the component: Direct material $2.50 Direct labor 0.50 Variable overhead 1.00 Fixed overhead Total unit cost $6.50 REQUIRED 1. Compute the contribution margin for Parts Division, Machines Division, and Global Tronics, Inc. associated with the sale of Part 235 and Model SC20. Show ALL workings. 2. Suppose that Sasha Lebron abolishes the current transfer pricing policy and gives division autonomy in setting transfer prices. (i) Can you predict what transfer price the manager of the Parts Division will set? (ii) What should the minimum transfer price for this part be? (iii) What should the maximum transfer price be? 3. Given the new transfer pricing policy, predict how this will affect the production decision for Model SC20. How many units of Part 235 will the manager of the Machines Division purchase, either internally or externally? 4. Given the new transfer price set by the Parts Division and your answer to Requirement 3, how many units of Part 735 will be sold externally 5. Given your answers to Requirements 3 and 4, compute the firm wide contribution margin. What has happened? Was Sasha's decision to grant additional decentralization good or bad? Why? AF201 Assignment2 - Micro Word Aalbo AaBbc Aabbcc AaB AB Schong a ding! Nading 2 The Son N Global Tronics, Inc., manufactures a variety of printers, scanner, and tax Machines in its two divisions the Machines Division and the Parts Division. The Parts Division produces electronic Ports that can be used by the Machines Division. All the Parts this division produces can be sold to outside customers, however, from the beginning nearly 90 percent of its output has been used internally. The current policy requires that all internal transien of Parlsbe transferred at full cost Recently, SashaLebron, the chief executive officer of Global Tronic, decided to investigate the transfer pricing policy. He was concerned that the current method of pricing internaltrando might force decisions by divisional managers that would be suboptimal for the firm. As part of his inquiry, he gathered some information concerning Part 35 used by Machines Division in its production of a basle scanner, Model SC 20 The Machines Division ses 40 000 units of Model S each year of unit price of $42. Given current market conditions this is the maximum price that the division can charge for Mode SC 20 the cost of manufacturing the scanner follows: Totol unit cost The scanner is produced efficiently, and no further reduction in manufacturing costs is possible. The manager of the Parts Division indicated that she could sell 40,000 units (the division's capacity for this party of Part 35 to outside buyers at $12 per unit. The Machines Division could also buy the part for $ 12 from external suppliers. The Parts Division manager supplied the following details on the manufacturing cost of the component: Direct material $2.50 Direct labor 0.50 Variable overhead 1.00 Fixed overhead Total unit cost $6.50 REQUIRED 1. Compute the contribution margin for Parts Division, Machines Division, and Global Tronics, Inc. associated with the sale of Part 235 and Model SC20. Show ALL workings. 2. Suppose that Sasha Lebron abolishes the current transfer pricing policy and gives division autonomy in setting transfer prices. (i) Can you predict what transfer price the manager of the Parts Division will set? (ii) What should the minimum transfer price for this part be? (iii) What should the maximum transfer price be? 3. Given the new transfer pricing policy, predict how this will affect the production decision for Model SC20. How many units of Part 235 will the manager of the Machines Division purchase, either internally or externally? 4. Given the new transfer price set by the Parts Division and your answer to Requirement 3, how many units of Part 735 will be sold externally 5. Given your answers to Requirements 3 and 4, compute the firm wide contribution margin. What has happened? Was Sasha's decision to grant additional decentralization good or bad? Why