Superior Sanitizer is manufacturer and supplier of hand sanitizers. Due to the corona virus health crises there is a great demand for their products in the current marketplace. The glass bottles are produced in the bottle division, and then transferred to the liquid division, where they are filled with sanitizer liquid.

The company's best-selling product is 'Kenkey Hand Sanitizer'. The standard cost of the bottle of Kenkey is shown in the following table:

Bottle division

Liquid division

Direct material

$10

$20

Direct labour

$20

$10

Variable Overhead

$25

$32

Total standard cost

$68

$80

Bottle division can also sell the bottles directly to glass bottle wholesalers. The sales price for a unit of bottles is $85. The liquid division sells its finished product for $6.00.

Required:

1.Assume that there is no spare capacity in the Bottle division:

a. Use general rule to calculate the transfer price for bottles (1 mark).

b. Calculate the transfer price if it is based on standard variable cost with a 10% mark-up (1 mark).

2. Assume that there is spare capacity in the bottle division.

a. Use the general rule to calculate transfer price for bottles (1 mark),

 

b. Explain why your answers to requirements 1(a) and 2(a) differs

 

Explain how can management team of Superior Sanitizer use target costing to reduce costs and plan profits?

At Superior Sanitizer, managers of profit centers and investment centers have considerable autonomy in deciding whether to accept or reject orders for goods or services, and whether to source their materials and components, or services, from inside or outside the organization. They also have considerable autonomy over setting and accepting transfer prices. Describe the difference between market-based and cost-based pricing that managers of Superior Sanitizer, might choose to use?

Some argue that control is the essential management process that everything else hangs off. Why is control such an important part of management accounting systems? Or is it not really the central function of organizations? While discussing, write arguments for and against?