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Responsibility Assignment

This document discusses responsibility accounting and transfer pricing between divisions of a company. It provides 3 problems involving computing missing data for divisions, determining the lower limit of an internal transfer price between divisions, and analyzing the impact on company profits of one division supplying another internally versus externally. The problems require calculating sales, operating income, assets, margins, turnover, return on investment, residual income, variable and fixed costs, contribution margins, and analyzing internal transfer pricing versus external supplier pricing.

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Sendo Akira
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© © All Rights Reserved
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Download as PDF, TXT or read online on Scribd
111 views

Responsibility Assignment

This document discusses responsibility accounting and transfer pricing between divisions of a company. It provides 3 problems involving computing missing data for divisions, determining the lower limit of an internal transfer price between divisions, and analyzing the impact on company profits of one division supplying another internally versus externally. The problems require calculating sales, operating income, assets, margins, turnover, return on investment, residual income, variable and fixed costs, contribution margins, and analyzing internal transfer pricing versus external supplier pricing.

Uploaded by

Sendo Akira
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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RESPONSIBILITY ACCOUNTING AND TRANSFER PRICING

PROBLEM EXERCISES:

1. For each of the following independent cases, the minimum desired Return on Investment (ROI) is 20%.
Certified Public Accountant
Sales P 400,000 (5) ______ P 700,000
Operating Income (1) ______ (6) ______ P 42,000
Operating Assets (2) ______ P 300,000 (9) ______
Margin 15% 8% (10) _____
Turnover (3) ______ 3 times (11) _____
Return on Investments 30% (7) ______ (12) _____
Residual Income (4) ______ (8) ______ P 22,000
REQUIRED: Compute for each Division’s missing items.

2. The following data pertain to New York, Inc. operations for July 2006:
TOTAL NORTH Division CENTRAL Division
Amount % Amount % Amount %
Sales P1,000,000 (100%) (100%) (100%)
Less: Variable Expenses ( ) ( ) ( )
Contribution Margin ( ) P360,000 ( 60% ) ( )
Less: Traceable fixed expenses ( ) (P150,000) ( ) P200,000 ( )
Division segment margin ( ) ( ) P120,000 ( 30% )
Less: Common fixed expenses ( )
Income P 40,000 ( )

REQUIRED: Fill-in the missing data.

3. The CBA company’s Division A produces a small tool used by other companies as a key pert in their products. Cost
and sales data relating to the small tool are given below:
Selling price per unit P 50
Variable cost per unit P 30
Fixed costs per unit* P 20
* Based on A division’s capacity of 40,00 tools per year.
CBA Company’s Division B is introducing a new product that will use a tool such as the one produced in the Division
A. An outside supplier has quoted the Division B a price of P 48 per tool. The Division B would like to purchase the
tools from Division A instead, if an acceptable transfer price can be worked out.

REQUIRED:
a. Determine the lower limit of the transfer assuming that:
1. Division A has ample idle capacity to handle all the Division B’s needs.
2. Division A is presently selling all the tools it can produce to outside customers.
b. From the standpoint of the entire company, should the Division B purchase the tools from the Division A
(operating at a capacity) or from outside supplier? Why?
c. Assume that the Division B requires 10,000 tools per year and the Division A is presently selling 35,000 tools
per year to outside customer:
1. Determine the lower limit of the transfer price
2. What would be the impact on company’s overall profits if all 10,000 tools were acquired from the Division
A rather than from the outside suppliers?

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