Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Beta division of Sayarrat Bhd produces electric motors. The division sold 20 percent of them to Sigma division and 80 percent are sold to external

image text in transcribed
Beta division of Sayarrat Bhd produces electric motors. The division sold 20 percent of them to Sigma division and 80 percent are sold to external customers. Sayarrat Bhd treats its divisions as profit centres and allows division managers to choose whether to sell or buy from internal divisions. Corporate policy requires that all interdivisional sales and purchases be transferred at variable cost. Beta division estimated sales and standard costs for the year ended 31 December based on a capacity of 50,000 units are as follows: Sigma Division External RM Customers RM Sales 450,000 4,000,000 Less: variable costs 450,000 1,800,000 Contribution margin 2,200,000 Less: fixed costs 150,000 450,000 Operating income/(loss) (150,000) 1,750,000 Units sales 10,000 40,000 Beta division has an opportunity to sell the 10,000 units to an external customer for RM75 per unit. Sigma division is allowed to purchase the units it needs from an external supplier for RM85 each. (a) Assuming that Beta division desires to maximise operating income, should it take on the new customer and discontinue sales to Sigma division? Why? (3 Marks) (b) Assume that Sayarrat Bhd allows division managers to negotiate transfer prices. The managers agreed on a tentative price of RM75 per unit, to be reduced by an equal sharing of the additional operating income that results from the sale to Sigma of 10,000 motors at RM75 per unit. Calculate the company's new transfer price. (3 Marks) (c) Assume that Beta division could sell all units to outsiders for RM100 per unit. Should Beta takes this opportunity

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Fraud Examination

Authors: W. Steve Albrecht

6th Edition

1337619671, 978-1337619677

More Books

Students also viewed these Accounting questions

Question

3. What values would you say are your core values?

Answered: 1 week ago