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roblem 22-17 Cost Centers, Profit Centers, Decentralization, Transfer Prices.

Given:enster Corporation manufacturers windows with wood and metal frames. Fenster has three departments: Glass,

Wood, and Metal. The Glass Department makes the window glass and sends it to either the Wood or Metal Departmentwhere the glass is framed. The window is then sold. Upper management sets the production schedules for the threeepartments and ealuates them on output !uantit", cost ariances, and production !ualit".

. Are the three deartments cost centers, reven!e centers, or rofit centers"

specified set of actiities.

The Glass, Wood, and Metal departments are all cost centers. The" are ealuated as cost centers #ased onoutput and ariances from e$pected costs.

. Are the three deartments centralized or decentralized"

Centrali%ed: Upper management sets their production schedule

. Can a centralized deartment be a rofit center" $h% or &h% not"

&es. Centrali%ation relates to the degree of autonom" that a department has for decision making. This concept isindependent of the t"pe of responsi#ilit" center used to ealuate performance. For e$ample, the Glass departmentcould #e a profit center if upper management sets a transfer price for the glass transferred from the glass to the

Wood and Metal departments. ' department ma" #e organi%ed as a profit center #ut has little decision(makingauthorit". )uch a department would #e a centrali%ed department.

. (!ose the !er mana)ement of *enster Cororation decides to let the three deartments set theiro&n rod!ction sched!les, b!% and sell rod!cts in the e+ternal maret, and have $ood and etalDeartments ne)otiate &ith the Glass Deartment for the )lass anes !sin) a transfer rice.a. $ill this chan)e %o!r ans&ers to re!irements 1 and 2"

With these changes, Fenster will #e moing toward a more decentrali%ed enironment #ecause eachdepartment will hae more local decision(making authorit", such as the a#ilit" to set its own productionschedule, #u" and sell products in the e$ternal market, and negotiate transfer prices.

These changes make all three departments profit centers #ecause the managers of each department are

responsi#le for #oth costs and reenues.

b. /o& &o!ld %o! recommend !er mana)ement eval!ate the three deartments if this chan)eis made"

Upper management should ealuate the three departments as profit centers #ecause profits would #e agood indicator of how well each department is doing.

Responsibility Center: ' part, a segment, or a su#unit of an organi%ation whose manager is accounta#le for a

Cost Center: a responsi#ilit" center where the manager is accounta#le for costs onl".

Revenue Center: a responsi#ilit" center where the manager is accounta#le for reenues onl".

Profit Center: a responsi#ilit" center where the manager is accounta#le for reenues and costs.

Investment Center: a responsi#ilit" center where the manager is accounta#le for inestments, reenues and costs.

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Problem 22-10 !ltinational transfer ricin), effect of alternative transfer-ricin) methods

Tech *riendl% Com!ter, nc., &ith head!arters in (an *rancisco, man!fact!res and sellsthree divisions, each of &hich is located in a different co!ntr%.

a. China division -- man!fact!rers memor% devices and e%boardsb. (o!th orea division -- assembles desto com!ters !sin) locall% man!fact!red

the e%boards from China division.c. 3.(. division -- aca)es and distrib!tes desto com!ters

The three divisions are eval!ated as rofit centers. The costs for &or done in each divisias follo&s:

China Division (o!th orea Div.f). Process emor% devices and e%boards Assembles com!

internall% man!facand memor% device%boards from th

C!rrenc% 4!an $on5+ternal (ellin) Price ',6 memor%8e%boards 1,#',

9ariable cost 0 %!an #6,*i+ed 1,0 %!an '7,ncome ta+ rate '; 2;C!rrent 5+chan)e rates 0 0 %!an < =1 dollar 1,

Conversion to 3.(. C!rrenc%

C!rrenc% 3.( Dollar 3.(. Dollar (ellin) Price =6 memor%8e%boards =1,#'9ariable cost 1 #6*i+ed 22 '7ncome ta+ rate '; 2;

Transfer rice ethod

aret Price =6 China to (o!th orea =1,#'2; of *!ll Cost >' 2,02#6; of 9ariable Cost #6 2,'6

1. Calc!late the after-ta+ oeratin) income er !nit earned b% each div. !nder the follo&in

China Division aret Price 2; of *!ll Cost(ellin) Price ?TP@ =6 =>'Ded!ct:

9C er !nit ?1@ ?1@

*C er !nit ?22@ ?22@Divisional eratin) nc. =1 =2,21 =#2

ncome Ta+ at '; 72 12Divisional B er !nit =1 =102

(o!th orea Div. aret Price 2; of *!ll Cost(ellin) Price ?TP@ =1,#' =2,02Ded!ct:

Trans-in from China ?6@ ?>'@9C er !nit ?#6@ ?#6@

*C er !nit ?'7@ ?'7@

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Divisional eratin) nc. =2 =1,'>

ncome Ta+ at 2; ' 202

Divisional B er !nit =1> =1,1>

3.(. Division aret Price 2; of *!ll Cost(ellin) Price ?TP@ =#, =#,

Ded!ct:Trans-in from (o!th . ?1,#'@ ?2,02@9C er !nit ?126@ ?126@

*C er !nit ?#26@ ?#26@Divisional eratin) nc. =2,1 ='#

ncome Ta+ at #; ># 120

Divisional B er !nit =1,'7 =#1

2. $hich transfer-ricin) method?s@ &ill ma+imize the net income er !nit of 3ser-*riendl%

aret Price 2; of *!ll CostChina Division =1 =102(o!th orea Div. 1> =1,1>

3.(. Division 1,'7 =#1

Total =1,6#1 =1,>>1

3ser *riendl% &ill ma+imize its B b% !sin) the #6; of variable costs, transfer-ricin)

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, )lobal income ta+ minimization

a desto com!ter. Tech *riendl% has

arts, alon) &ith memor% devices and

n for a sin)le desto com!ter are

3.(. Divisioners !sin) Paca)es and distrib!tes!red arts desto com!ters

s andChina Div.

3.(. Dollarcom!ter #, com!ter

&on 126 dollar&on #26 dollar

#;1, $on < =1 1

3.(. Dollarcom!ter =#, com!ter

126#26#;

(o!th orea to 3.(.

transfer-ricin) methods:

#6; of 9C=#6

?1@

?22@=2,21 =# =2,21

12=1

#6; of 9C=2,'6

?#6@?#6@

?'7@

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=1,2

26>

=1,2'

#6; of 9C=#,

?2,'6@?126@

?#26@=0

=27

=>#

desto com!ter"

#6; of 9C=1

=1,2'

=>#

=1,>72

ethod.

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Problem 22-26 Transfer-ricin) dis!te

The Allison-Chambers Cororation, man!fact!rer of tractors and other heav% farm

f!ll a!thorit% on all decisions involvin) the sale of that divisions o!t!t both to o!tsidersand to other divisions of Allison-Chambers. Division C has in the ast al&a%s !rchasedits re!irement of a artic!lar tractor-en)ine comonent from Division A. /o&ever, &hen

to !rchase the en)ine comonent from e+ternal s!liers.

insists that, beca!se of the recent installation of some hi)hl% secialized e!iment and theres!ltin) hi)h dereciation char)es, it &ill not be able to earn an ade!ate ret!rn on itsinvestment !nless it raises its rice. Division As mana)er aeals to to mana)ement ofAllison-Chambers for s!ort in the dis!te &ith Division C and s!lies the follo&in)oeratin) data:

Cs ann!al !rchase of the tractor-en)ine comonent 1, !nits

As variable cost8!nit of the tractor-en)ine comonent =12As fi+ed cost er !nit of the tractor-en)ine comonent =2

'llison(Cham#ers *utside )upplier

Diision ' Diision C1, !nits

tractor(engine component(P < =16 +++ (P

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will take actions that are in the #est interests of the compan" as a whole.

&o!ld be !sed for other rod!ction oerations that &o!ld res!lt in ann!al cash-

the o!tside so!rce"

Total disadantage of #u"ing the component from outside )ee / a#oe.- ?=16,@

Cash inflow from an alternatie use of Diision '1s facilities =1,

=#,

s!liers" $hat sho!ld the transfer rice for the comonent be set at so thatdivision mana)ers actin) in their o&n divisions best interests tae actions that arealso in the best interest of the coman% as a &hole"

Unit cost of #u"ing the components from outside ?=116@

'oida#le cost of manufacturing the components in Diision ' =12Unit adantage of #u"ing a component from outside =6

=6,

Transfer price:

Minimum that Diision ' seller- would acceptncremental costs of making component =12

Ma$imum that Diision C #u"er- would pa" =116

)ince the ma$imum that Diision C would pa" is less than the minimum that Diision ' wouldaccept, no transfer should take place. Goal congruence would #e achieed with a transfer

price set e!ual to the outside price of 2//3.

Problem 22-2> Transfer-ricin) roblem

Unit cost of #u"ing the component from outside ?=1#6@

'oida#le cost of manufacturing the component in Diision ' =12

Unit disadantage of #u"ing the component from outside ?=16@

Total disadantage of #u"ing the component from outside ?=16,@=#,

=16,

2. Ass!me that internal facilities of Division A &o!ld notother&ise be idle. % notrod!cin) the 1,!nits for Division C, Division As e!iment and other facilities

oeratin) savin)s of =1,. (ho!ld Division C !rchase the comonent from

'dantage of #u"ing 1,components from outside source

#. Ass!me that there are noalternative !ses for Division As internal facilities andthat the rice from o!tsiders dros =2. (ho!ld Division C !rchase from e+ternal

Total adantage of #u"ing the 1,components from outside

'ssume that Diision ' can sell the 1,units to other customers at =166per unit, with aria#lemarketing costs of =6per unit.

1. Determine &hether Allison-Chambers &ill benefit if Division C !rchases the 1,comonents from e+ternal s!liers at =1#6er !nit.

'lternatie use of facilities: 1,4 =166( =12( =6- 5

Bet benefit of Div. C b!%in) o!tside at =1#6E alternative sales b% Div. A at =166

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Problem 22-2 Pertinent transfer rice

5!roa, nc., has t&o Divisions, A and , that man!fact!re e+ensive bic%cles. Division Arod!ces the bic%cle frame, and Division assembles the rest of the bic%cle onto the frame.There is a maret for both the s!bassembl% and the final rod!ct. 5ach division has beendesi)nated as a rofit center. The transfer rice for the s!bassembl% has been set at thelon)-r!n avera)e maret rice. The follo&in) data are available for each division:

(ellin) rice for final rod!ct ?Division s sellin) rice@ =#Fon)-r!n avera)e sellin) rice for intermediate rod!ct 2ncremental cost er !nit for comletion in Division 16ncremental cost er !nit in Division A 12

The mana)er of Division has made the follo&in) calc!lation:

5!roa

Division A Division 6roduces Frame 'ssem#les 7ike

Final )elling 6rice =#Frame1s 8ong(run 'er. )6 =2 Mkt. Cost of Frame ?2@

ncremental Costs =12 ncremental Costs ?16@

CM 8oss per 7ike 230-

lon)-r!n avera)e maret rice the correct transfer rice"

Unit Contri#ution margin from outside sales of frames 9o transfers from Di. ' to Di. 7-:Frame1s long(run aerage selling price =2

ncremental costs of producing frames ?12@

Unit CM from sale of frames in the intermediate market =

Unit CM from transfer of frames to Diision 7 accompanied #" assem#l" and sale of #ikesFinal selling price of assem#led #ikes =#ncremental unit costs associated with Diision ' ?12@

ncremental unit costs associated with Diision 7 ?16@

Unit contri#ution from sale of #ikes =#

=6

The general guideline transfer price can #e calculated as follows:

inim!m transfer rice < Additional !nit incremental costs ! to oint of transfer 3nit oort!nit% cost of main) the tra

Minimum transfer price 5 2/0 ; 200 ( 2/0- 5 200 which is the market price of frames

Use of this T6 would result in a negatie CM of 230 per unit transferred. Thus, no transfers would take pl

Final selling price of assem#led #ikes =#General guideline unit transfer price associated with frames from Diision ' ?2@

ncremental unit costs associated with Diision 7 ?16@

Unit contri#ution from sale of #ikes gien a transfer price of 200 ?=6@

1. (ho!ld transfers be made to Division if there is no!n!sed caacit% in Division A" s the

Unit CM loss resulting from transfers if there is noe$cess capacit" in Diision '

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Diision 7 must either drop the product or reduce the incremental costs of assem#ling #ikes from /30 tothan 2/00.

inim!m transfer rice < Additional !nit incremental costs ! to oint of transfer 3nit oort!nit% cost of main) the tra

inim!m transfer rice accetable to Division A ?seller@ < =12 < =12.

a+im!m transfer rice accetable to Division ?b!%er@ is =16. An% hi)her TP &o!ld res!lt in a loss to Division .

For

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*erall unit contri#ution margin per unit transferred =#

)ince all of the CM generated from the transfers is allocated to Diision ', there is little incentiefor Diision manager 7 to #u" from '.

Bote: The transfer rice that ma% aear otimal in an economic anal%sis, ma% in fact, be totall%

!naccetable from the vie&oints of ?1@ reservin) a!tonom% of the mana)ers, and ?2@ eval!atin)the erformance of divisions as economic !nits. Transfer rices allocate contrib!tion amon) divisions.

Problem 22-20 Pricin) in imerfect marets

oeratin) income for Division A. $hat transfer rice &o!ld rod!ce the same oeratin) incomefor Division A" s that rice consistent &ith that recommended b% the )eneral )!ideline in thechater so that the res!ltin) decision &o!ld be desirable for the coman% as a &hole"

(ol!tion aroach H1:

6otential CM from e$ternal intermediate sale: /,000 4 2/>3 ( 2/0- 5 2?3,0006otential CM if )6 is keep at 200 with sales olume of @00 units: @00 4 200 ( 2/0- 5 2AB,000Total CM that needs to #e generated #" the remaining 00 units 2//,000

emaining units 00CM per unit that needs to #e generated #" each of the remaining 00 units 233

ncremental costs per unit to produce #ic"cle frames in Diision ' /0

'ppropriate transfer price necessar" to generate 2//,000 of CM 2/?3

(ol!tion aroach H2:8et 4 e!ual the transfer price at which Diision ' is indifferent #etween selling all units outside ersustransferring 00 units inside.

/,000 4 2/>3 5 @00 $ 200- ; 00 42/>3,000 5 2/A0,000 ; 0042=3,000 5 0042=3,00000 5 42/?3 5 4

(ol!tion aroach H#:

inim!m transfer rice < Additional !nit incremental costs ! to oint of transfer 3nit oort!nit% cost of main) the transfe

inim!m transfer rice < =12 ?=11,82@ < =12 =66 < =176

caacit%.

a. 3sin) the )eneral )!ideline, &hat is ?are@ the minim!m transfer rice?s@ that sho!ld lead to thecorrect economic decision" )nore erformance-eval!ation considerations.

f >00 units are sold #" Diision ' at 2/>3:inim!m transfer rice < Additional !nit incremental costs ! to oint of transfer 3nit oort!nit% cost of main) the tra

inim!m transfer rice < =12 ?=@ < =12 for the 1 !nits remainin)

Th!s TP for 1 - 1 !nits sho!ld be set at =12

1. (!ose the mana)er of Division A has the otion of ?a@ c!ttin) the e+ternal rice to =106, &iththe certaint% that sales &ill rise to 1,!nits, or ?b@ maintainin) the e+ternal rice of =2forthe !nits and transferrin) the 2!nits to Division at a rice that &o!ld rod!ce the same

2. (!ose that if the sellin) rice for the intermediate rod!ct is droed to 106, sales to e+ternal artco!ld be increased to 0!nits. Division &ants to ac!ire as man% as 2!nits if the transfer ricaccetable. *or simlicit%, ass!me that there is no e+ternal maret for the final 1!nits of Division

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f more than /00 units are needed:inim!m transfer rice < Additional !nit incremental costs ! to oint of transfer 3nit oort!nit% cost of main) the tra

!st s&itch from 0 I ?=106 - =12@ < 2A?,300

To I ?=2 - =12@ < 2AB,000

Contrib!tion mar)in that m!st be covered b% 2nd 1 !nits transferred 2=,300

inim!m transfer rice < =12 ?=#,681@ < =12 =#6 < =166

Th!s TP for 11 - 2 !nits sho!ld be set at =166

Diision 7 would reEect this #ecause T6 of 2/33 would make 7ikes unprofita#le 2=00 ( 2/33 ( 2/30 5 23een though it would #e profita#le to compan" as a whole #ut not as profita#le as transferring onl" /00.

f more than 2 !nits need to be transferred then

inim!m transfer rice < Additional !nit incremental costs ! to oint of transfer 3nit oort!nit% cost of main) the tra

inim!m transfer rice < =12 ?=2 - =12@ < =2

b. Comare the total contrib!tion !nder the alternatives to sho& &h% the transfer rice?s@ recommen

lead?s@ to the otimal economic decision.

*ptions: Transfer none Transfer 1 Transfer 2 >00 4 2/>3 ( 2/0- 2A?,300

>00 4 2/>3 ( 2/0- 2A?,300/00 4 2=00 ( 2/0 ( 2/30- 2=,000

@00 4 200 ( 2/0- 2AB,000

00 4 2=00 ( 2/0 ( 2/30- 5 2A,000

Total Contri#ution 2A?,300 2?0,300 2?0,000

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nsfer

ace.

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less

nsfer

(ee J#

er

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r

nsfer

ies is

s

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nsfer

-

nsfer

ed

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Problem 22-#> Transfer ricin), !tilization of caacit%

The California nstr!ment Coman% ?CC@ consists of the semicond!ctor divisionoerates as an indeendent rofit center. The semicond!ctor division emlo%s ccomonents: the ne& hi)h-erformance (!er-chi and an older rod!ct calledcost characteristics:

California nstr!ment Com

(emicond!ctor Divisionndependent 6rofit Center-

Prod!ction: (!er-Chi a%-ChiDirect aterials =6 =2Direct f). Fabor /o!rs # 1 Fabor rate8ho!r =2 =2

Total => =2Total Direct f). Costs =>6 =22Caacit% in Direct Fabor /rs. '6,

(ales:(!er-Chi C!stomer a+im!m Demand K = 16,

(ellin) Price =a%-Chi C!stomers a+im!m Demand K =2> 3nlimited (ellin) Price =2>

Loint Mesearch ProNect Mevealed that: ?1@ a sin)le (!er-Chi co!ld be s!bstit!ted for the circ!it board !sed t

?2@ the imroved rocess-control !nit co!ld be sold for =1'6.

1. Calc!late the C er DF ho!r of sellin) (!er-Chis and a%-Chis. f no traProcess-Control Division, ho& man% (!er-Chis and a%-Chis sho!ld the$hat &o!ld be the divisions ann!al contrib!tion mar)in"

(!er-Chi a%-ChiC er DF ho!r

(ellin) Price = =2>9ariable f). Costs ?>6@ ?22@Contrib!tion ar)in er chi =16 ='Direct f). Fabor /o!rs Me. # 1

C er DF ho!r =6 ='

eca!se the C er DF ho!r is hi)her for (!er-Chi than for a%-Chi,and sell as man% (!er-Chis ?16,@ as it can. An% remainin) available cChis. (ee belo& -- no caacit% to rod!ce an% a%-Chis.

(!er-Chis:a+im!m Available DF /o!rs '6,a+im!m (ales Potential 16, ?'6,@a%-ChiDF /o!rs Available for a%-Chis /o!rs re!ired for a%-Chis 1

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a+. Prod!ction of a%-Chis C8Chi =16 ='

a+im!m Potential Contrib!tion =226, =

enefit of Transfer to Process-Control Division:Cost savin)s from e+ternal circ!it board not needed =7

Cost of (!er-Chi transferred to PCD >6Cost savin)s er !nit transfer to PCD =6

5+tra reven!e )enerated from imroved PC3 Be& sellin) rice =1'6

ld sellin) rice 1#2 1#5+tra !nit contrib!tion mar)in to PCD =1

3nits to be transferred 6,Total enefit to PCD =0,

Disadvanta)e of Transfer to (emicond!ctor DivisionFost C8!nit er !nit of (!erchi transferred ?=16@

3nits of (!er-Chi transferred to PCD 6, ?76,@Bet benefit to CC of transferrin) 6, (!er-Chis =16,

#. $hat transfer rice, or ran)e of rices, &o!ld ens!re )oal con)r!ence amon)

inim!m TP er (!er-Chi < ncremental cost er !nit to t. of transfer oinim!m TP er (!er-Chi < =>6 =16 < =

/o&ever, if the mana)er of the Process-Control Division comares the = s!rice for circ!it boards ?=7@, the transfer rice &ill be &ron)f!ll% reNected.

The = TP sho!ld be comared &ith =# &hich is determined b% tain) the o

l!s the contrib!tion mar)in increase &hich co!ld be lost if the transfer does

Bote: the ran)e of ne)otiation is from = ?minimal accetable amo!nt to theamo!nt accetable to the Process-Control Division@.

'. f labor caacit% in the semicond!ctor division &ere >, ho!rs instead of '6re!irement # differ" >, '6,

f the e+ternal sellin) rice of (!er-Chis is held ti)ht at =, then the e+tra h1. Prod!ce a%-Chis for o!tside sales, or2. Prod!ce (!er-Chis for transfer to the Process-Control Division

tion 1: Prod!ce E (ell 16, a%-Chis E (ell 6, Me)!lar PC3

5+tra ho!rs available 16,

/o!rs re!ired er !nit rod!ced 1

5+tra !nits &hich can be rod!ced 16,

Prod!ce E (ell a%-Chis(ales of 16, a%- chis =2> #0,

9ariable f). Costs of a%-chis ?22@ ?##,@

Contrib!tion mar)in from a%-chis =' =>,

2. The Process-Control Division e+ects to sell 6,control !nits this %ear. *rosho!ld 6,(!er-chis be transferred to the Process-Control Division to re

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(ales of Bormal Process-Control 3nit(ales of 6, Me)!lar PC3s =1#2 =>>,!tside cost of circ!it board ?7@ ?#6,@

Direct f). Fabor ?'6@ ?226,@

Contrib!tion mar)in from re)!lar PC3s =17 =6,

Total C tion H1 =1'6,

tion 2: Prod!ce (!er-Chi E Transfer to PCD

5+tra ho!rs available 16,

/o!rs re!ired er !nit rod!ced #

5+tra !nits &hich can be rod!ced 6,

(ales of imroved Process-Control 3nit =1'6 =726,9ar. f). Costs &ithin (emicond!ctor Div. ?>6@ ?#26,@

Fabor costs &ithin Process-Control Division ?'6@ ?226,@

Contrib!tion mar)in mroved PC3 =#6 =176,

enefit of tion 2 =#,

ncremental Aroach:(P Gain =1'6 =1#2 =>6,

Cost (avin)s =7 =>6 26,5+tra C from mroved PC3 =0,

C from a%-chis lost ?>,@

enefit of transfer =#,

inim!m TP er (!er-Chi < ncremental cost er !nit to t. of transfer oinim!m TP er (!er-Chi < =>6 ?=>,86,@ < =>6 =12 < =77

Bote the ran)e of ne)otiation is from =77 ?minimal accetable amo!nt to the (amo!nt accetable to the Process-Control Division@.

Proof: Transfer 6, (!er-Chis to rod!ce an mroved Process-Control 3

Transfer K =77

(D PCD(ales of imroved PC3 =1'6 =726,(ales rice ?TP@ of (!er-Chi =77 =#6, ?=#6,@Fess incremental rod!ction costs Cost er !nit of (!er-Chi ?=>6@ ?=#26,@

Fabor costs &ithin PCD ?='6@ ?=226,@=>, =116,

Transfer K =#

(D PCD(ales of imroved PC3 =1'6 =726,(ales rice ?TP@ of (!er-Chi =# ='16, ?='16,@Fess incremental rod!ction costs Cost er !nit of (!er-Chi ?=>6@ ?=#26,@

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Fabor costs &ithin PCD ?='6@ ?=226,@

=0, =6,

Bote: The sol!tion man!al has the follo&in) ans&er for the transfer rice

Of 16, additional labor ho!rs &ere available in the (emicond!ctor Divisi16, a%-chis ?at 1 labor ho!r er chi@, or be !sed to man!fact!re 6,transfer to the Process-control Division. The (emicond!ctor Division man

and sell three a%-chis at =2> each for ever% one (!er-chi transferred,

Can %o! determine &h% the ans&er boo sol!tion is in error" /int: =>> no

/idden ro&s

e!al to the oort!nit% cost of the lost sales of a%-chis. eca!se the

=7 ?# I =2>@. The ma+im!m rice &o!ld remain at =#.O

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nd the rocess-control division, each of &hichaftsmen &ho rod!ce t&o different electronica%-chi. These t&o rod!cts have the follo&in)

an%

Process-Control Divisionndependent 6rofit Center-

Process-ControlProd!ction: 3nitDirect aterials ?Circ!it oard@ =7Direct f). Fabor /o!rs # Fabor rate8ho!r =16

Total ='6Total Direct f). Costs =116

(ales:Process-Control 3nit J!antit% " (ellin) Price =1#2

>>

rod!ce the rocess-control !nit=1'6

sfers of (!er-Chis &ere made to theemicond!ctor Division man!fact!re and sell"

A nstr!ment Coman% sho!ld rod!ceaacit% sho!ld be !sed to rod!ce a%-

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he division mana)ers"

ort!nit% cost lost er !nit transferred

)ested TP &ith the o!tside !rchase

tside rice for the circ!it board ?=7@

ot tae lace ?=1'6-=1#2 or =1#@. =#emicond!ctor Division@ to =# ?ma+im!m

,, &o!ld %o!r ans&er to

!rs co!ld be !sed to either

the vie&oint of CC as a &hole, lace circ!it boards"

7/24/2019 ACCT 611 Chp 22

22/25

ort!nit% cost lost er !nit transferred

micond!ctor Division@ to =# ?ma+im!m

nit

=176,

7/24/2019 ACCT 611 Chp 22

23/25

=176,

an)e.

on, those ho!rs co!ld be !sed to man!fact!re (!er-chis ?at # labor ho!rs er chi@ for )er &o!ld re!ire a transfer rice at least

the minim!m re!ired transfer rice &o!ld be

t =>6.

(emicond!ctor Division co!ld man!fact!re

7/24/2019 ACCT 611 Chp 22

24/25

7/24/2019 ACCT 611 Chp 22

25/25

5+lain.

product specified h t"pe of product.

g target output

s b% lettin)rio!s rod!cts.

ring ariousld #e determined as

t!rin) decisions"

atest profita#ilit",

eria that meet the arketing.

Manufacturing managers1hin #udgeted costs.increasing the

n so that productioncisions oercomes

ta#le for a

enues and costs.