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    CH 14 Ex 9 1011

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    CH 14 Ex 9 1011

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    tirol.d.cj
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    CH-14-EX-9-1011

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    22 views7 pages

    CH 14 Ex 9 1011

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    tirol.d.cj

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    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Download as xlsx, pdf, or txt
    of 7

    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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