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The company operates two divisions, Jay and Berry. Jay manufactures two products, A and B. Product A is sold to external customers for 84 per
The company operates two divisions, Jay and Berry. Jay manufactures two products, A and B. Product A is sold to external customers for 84 per unit. The only outlet for product B is Berry. Berry supplies an external market and can obtain its semi-finished supplies (product B) from either Jay or an external source. Berry currently has the opportunity to purchase product B from an external supplier for 76 per unit. The capacity of division Jay is measured in units of output, irrespective of whether product A, B or a combination of both are being manufactured. The associated product costs are as follows: Variable cost per unit Fixed overhead per unit Total unit costs A 64 10 74 B 70 10 80 Required: a) Using the above information, provide advice on the determination of an appropriate transfer price for the sale of product B from division Jay to division Berry under the following conditions: (i) (ii) when division Jay has spare capacity and limited external demand for product A when division Jay is operating at full capacity with unsatisfied external demand for product A. (b) The design of an information system to support transfer pricing decision making necessitates the inclusion of specific data. Identify the data that needs to be collected and how you would expect it to be used. The company operates two divisions, Jay and Berry. Jay manufactures two products, A and B. Product A is sold to external customers for 84 per unit. The only outlet for product B is Berry. Berry supplies an external market and can obtain its semi-finished supplies (product B) from either Jay or an external source. Berry currently has the opportunity to purchase product B from an external supplier for 76 per unit. The capacity of division Jay is measured in units of output, irrespective of whether product A, B or a combination of both are being manufactured. The associated product costs are as follows: Variable cost per unit Fixed overhead per unit Total unit costs A 64 10 74 B 70 10 80 Required: a) Using the above information, provide advice on the determination of an appropriate transfer price for the sale of product B from division Jay to division Berry under the following conditions: (i) (ii) when division Jay has spare capacity and limited external demand for product A when division Jay is operating at full capacity with unsatisfied external demand for product A. (b) The design of an information system to support transfer pricing decision making necessitates the inclusion of specific data. Identify the data that needs to be collected and how you would expect it to be used
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