Question
PT Bag Fashion is a company that produces export quality leather bags. Company has two profit center divisions, namely the Tanning Division and the Bag
PT Bag Fashion is a company that produces export quality leather bags. Company has two profit center divisions, namely the Tanning Division and the Bag Division. Tanning Division selling tanned cowhide to foreign customers. Currently the Tanning Division is still have remaining capacity if they have to sell the leather to the Bag Division. However, if you have to fulfill the Bag Division's entire request, the Tanning Division will sacrifice some overseas customers. The following is data related to the Tanning Division and the Bag Division:
Tanning Division
Total production capacity (units) 100,000
Number of units sold outside 80,000
Selling price overseas (Rp/unit) Rp200,000
Variable cost (Rp/unit) Rp120,000
Fixed cost based on capacity (Rp/unit) Rp25,000
Bag Division
Required number of skins (units) 30,000
The selling price of the bag (Rp/unit) Rp450.000
Variable cost (Rp/unit) Rp130,000 Fixed cost (Rp/unit) Rp55,000
Number of bags sold (units) 30,000
Question:
a. Looking at the situation in the two divisions, what should the minimum transfer fee be? supposed to be set by the Tanning Division? Explain! (2%)
b. Perform the calculation of the minimum transfer fee according to the answer to number a. (3%)
c. What is the maximum transfer fee that the Tanning Division can charge to Bag Division? Explain why! (3%)
d. Suppose it is known that the Bag Division can obtain a supply of leather at a price within domestic (local) value of Rp. 165,000 per unit. Does the Tanning Division have to accept the price of Rp. 165,000? Explain why! Is there additional profit? Give analysis supported by calculations! (7%)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started