Question 4

(7 marks)

a) Assume you are the new regional manager for a hotel chain. You receive the quarterly profit and loss statement reports and notice that it is similar to the financial performance reports for external users.

i) What additional information would you require? (2 marks)

ii)Suggest a financial performance report format that would provide you some of the

information required in (i)

b) Secure Windows Ltd has two divisions: the Glass Division and the Framing Division, Both divisions are profit centers, and each manager is evaluated and rewarded based on his division's profitability. The Framing Division has approached the Glass Division to buy glass needed to be fitted into its window frames that have been ordered by several big construction companies for their building projects. The Framing Division has been buying the glass from an external supplier for $8.50 per unit. Currently, the Glass Division has excess capacity and can fill the order for the 200 selected size that the Framing Division is requesting

The cost to the Glass Division to produce one glass sheet requested is as follows:

variable manufacturing cost per unit - $5

fixed manufacturing cost per unit - $050

shipping costs for external customers only

- $0.15

selling price to external customers - $9.00

i) Using the general rule, determine the minimum transfer price.

ii) Determine the transfer price under each of the following scenarios:

1) Market-based transfer price

2) Variable Cost-based transfer price

3) Full Cost-based transfer price

4) Variable Cost plus (assume 40% mark-up)

iii) Assume the Glass Division has no excess capacity and can sell everything produced externally. Would the transfer price change?

iv. Assume the Glass Division has no excess capacity and can sell everything produced externally. What is the maximum amount the Perfume Division would be willing to pay for the bottles?