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CH 14 Ex 9 1011

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23 views

CH 14 Ex 9 1011

Uploaded by

tirol.d.cj
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Exercise 9 ( Transfer Pricing; Decision Making )

Outside price for materials ₱ 150.00


Division A's annual purchase 10,000.00
Division B's variable costs per unit ₱ 140.00
Division B's fixed costs ₱ 1,250,000.00
Division B's capacity utilization 100%

1. Will the company benefit if division A purchases outside the company? Assume division B cannot sell its materials to outsid
SOLUTION:
Purchase costs from outside 10,000 x P150 = ₱ 1,500,000.00
Less: Savings of Division B's variable cost 10,000 x P140 = 1,400,000.00
Net cost (Benefit) for A to buy outside ₱ 100,000.00

2. Assume if division B can save P200,00 in fixed costs if it does not manufacture the material for division A. Should division A
SOLUTION:
Purchase cost from outside 10,000 x P150 = ₱ 1,500,000.00
Less: Savings of Division B's variable cost 10,000 x P140 = 1,400,000.00
Less: Savings of Division B's fixed cost 200,000.00
Net cost (Benefit) for A to buy outside -₱ 100,000.00

3. Assume the situation in requirement 1. If the outside market value for the materials drops P20, should A buy from the outsid
SOLUTION:
Purchase cost from outside 10,000 x P130 = ₱ 1,300,000.00
Less: Savings of Division B's variable cost 10,000 x P140 = 1,400,000.00
Net cost (Benefit) for A to buy outside -₱ 100,000.00

Exercise 10 ( Computation of the Return on Investment )

Sales ₱ 18,000,000.00
Net operating income ₱ 5,400,000.00
Average operating assets ₱ 36,000,000.00

1.Compute the margin for Inilette Services Company


SOLUTION:
Operating Profit Margin = Net Operating Income / Sales

Margin = ₱ 5,400,000.00
₱ 18,000,000.00

Margin = 30%

2. Compute the turnover for Inilette Services Company


SOLUTION:
Asset Turnover = Sales / Average Operating Asset

Turnover = ₱ 18,000,000.00
₱ 36,000,000.00

Turnover = 0.50

3. Compute the return on investment (ROI) for Inilette Services Company


SOLUTION:
ROI = Operating Profit Margin x Asset Turnover
ROI = 0.3 x 0.5
ROI = 0.15

OR

ROI = Net Operating Income / Average Operating Asset


ROI = ₱ 5,400,000.00
₱ 36,000,000.00
ROI = 15%

Exercise 11 ( Residual Income )

Maharlika Design Ltd. is a company specializing in providing design services to residential developers. Last year the company

Required: Compute the company's residual income for the year GIVEN:
SOLUTION:
Operating Income ₱ 400,000.00
Less: Minimum required return
( 16% x P 2,200000) 352,000.00
Residual Income ₱ 48,000.00
sell its materials to outside buyers.

vision A. Should division A purchase from the outside market?

uld A buy from the outside?


rs. Last year the company had net operating income of P400,00 on sales of P2,000,000. The company's average operating assets for the year

Operating Income ₱ 400,000.00


Operating Asset ₱ 2,200,000.00
Minimum required rate of return 16%
perating assets for the year were P2,200,000 and its minimum required rate of return was 16%.

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