QUESTION 2 (18 marks) Muskoge Company uses a process-costing system. The company manufactures a product that is processed in two departments: Molding and Assembly. In the Molding department, direct materials are added at the beginning of the process; in the Assembly department, additional direct materials are added at the end of the process. In both departments, conversion costs are incurred uniformly throughout the process. As work is completed, it is transferred out. The following table summarizes the production activity and costs for February Molding Assembly Beginning Inventories Physical Units 10,000 8,000 Costs Transferred in SO $45,200 Direct Materials $22,000 $0 Conversion Costs $13,800 $16,800 Current Production Units started 25,000 ? Units transferred out 30,000 35,000 Costs: Transferred in SO ? Direct Materials $56,250 $39,550 Conversion Costs $103,500 $136,500 Percentage of Completion Beginning Inventory 40% 50% Ending Inventory 80% 50% Required: a. Using the weighted average method, prepare the physical flow schedule, calculate the unit cost and prepare the cost reconciliation report below for Molding Department. (10 marks) Physical flow schedule: Units, beginning work in process.. Units started in February Total units to account for.. Units completed and transferred out... Units, ending work in process..... Total units accounted for.. Equivalent units calculation: Direct Materials Conversion Costs Units completed.. Add: Equivalent units in ending work in process.... Total equivalent units. Unit cost calculation: Total costs accounted for: Cost of goods transferred out Total costs in ending work in process Total costs accounted for b. c. The output of Molding department can either be sold or be transferred to the Assembly Department at its full manufacturing cost. What are the advantage and disadvantage of setting the transfer price at the full manufacturing cost? (2 marks) Suppose Muskoge abolished the current transfer pricing policy and gives the division autonomy in setting the transfer prices. If the Assembly Department can buy the same product from the external suppliers for $8 per unit, and the Molding Department has excess capacity, determine the minimum and the maximum transfer price for the negotiation in the long run. Briefly explain. (3 marks) Suppose the Molding Department is located in Country A with an income tax rate of 20%; the Assembly Department is located in Country B with an income tax rate of 40%. From a firm-wide perspective, determine the optimal transfer price. Provide a brief explanation to your answer. (3 marks) d