Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Leisure Group Berhad has a number of divisions including a Hotel division and a Furniture division. The Hotel Division operates a number of budget hotels

image text in transcribed
image text in transcribed
Leisure Group Berhad has a number of divisions including a Hotel division and a Furniture division. The Hotel Division operates a number of budget hotels along the east coast states of Terengganu and Pahang. Each year, the Hotel division purchases furniture for its hotel rooms. Currently, it purchases a bed-side table from outside suppliers for RM42.00. The manager of the Furniture division has approached the manager of the Hotel division about selling bed-side tables to the Hotel Division. The manager of the Furniture Division has tabulated the cost of one unit of bed-side table as follows: RM Direct materials 8.00 Direct labour 4.00 Variable Overhead 3.00 Fixed overhead 12.00 Total manufacturing cost 27.00 Currently, the Furniture division has the capacity to produce 75,000 bed-side table but is only producing 60,000. The Hotel division needs 10,000 bed-side table per year. Required: a) Classify three (3) common transfer pricing policies that might be used by Leisure Group Berhad. (3 marks) b) Compute the minimum transfer price? (2 marks) c) Compute the maximum transfer price? (1 mark) d) Should the transfer take place between the Furniture division and the Hotel Division? Interpret your answer. (2 marks) e) Suppose that the manager of the Furniture Division and Hotel Division agree on a transfer price of RM30.00. What is benefit (or cost savings) to each division? What is the benefit (or cost savings) to the company as a whole? Show your computations. () Suppose that the Furniture division were operating at full capacity. What is the minimum and (4 marks) the maximum transfer price? Should the transfer take place? Interpret your answer (2 marks)

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

Accounting Principles Volume 1

Authors: Jerry J. Weygandt, Donald E. Kieso, Paul D. Kimmel, Barbara Trenholm, Valerie Warren, Lori Novak

8th Canadian Edition

111950242X, 1-119-50242-5, 978-1119502425

More Books

Students also viewed these Accounting questions

Question

1. Why do we trust one type of information more than another?

Answered: 1 week ago