Managerial Accounting
Residual Income (RI) based on additional data of point d! (7.5 points) Problem 2 130 Points! - L04 Division A has a product that can be sold either to outside market or Division B of the same company for use in its production process. The managers of the divisions are evaluated based on their divisional prots. C A S E Division A: 1 2 3 Ver'ied by. Tommy Andrian (06131 ) and sent to Department/Program on JUNE I9. 202il Page 2 of4 FM-BlNUS-AA-FPU-78N2RO Capacity in units 100,000 100,000 100,000 Number of units being sold to outside customers 100,000 90,000 80,000 Selling price per unit outside customers 560 $55 $50 Variable cost per unit 545 $40 $30 Fixed cost per unit based on capacity 510 $8 56 Division B: Number of units needed for production 20,000 20,000 20,000 Purchase price per unit now being paid to an outside supplier $56 $53 $48 an eco perur Fixed cost per unit based on capacity 510 $8 $6 Division B: Number of units needed for production 20,000 20,000 20,000 Purchase price per unit now being paid to an outside supplier $56 $53 $48 Required: 1. Refer to the data in case 1 above. Assume in this case that $5 per unit in variable selling cost can be avoided on intracompanv sales. If the managers are free to negotiate and make decisions on their own, will a transfer take place? a. If so, within what range will the transfer price fall? Explain and show your calculation! (5 points) b. If not so, and means no transfer price on intracompany, make a calculation of income statement briey related amount of net operating income (loss) that be obtained from division A! (5 points) 2. Refer to the data in case 2 above. In this case, there will be no saving in variable selling cost can be avoided on intracompanv sales. If the managers are free to negotiate and make decisions on their own, will a transfer take place? If so, within what range will the transfer price fall? Explain and show your calculation! (5 points} 3. Refer to the data in case 3 above. In this case, there will be no saving in variable selling cost can be avoided on intracompany sales. If the managers are free to negotiate and make decisions on their own, will a transfer take place? a. If so, within what range will the transfer price fall? Explain your answer and also calculate the net operating income of division A in case 3! (7.5 points) b. If all products that be bought by the division B from transfer price negotiated at S 35 per unit, and these products will be processed further with additional variable cost $7 per unit. The selling price of ultimate product at S 61 per unit. Prepare income statement of division B briefly based on additional data above (3a only)! (7.5 points)
