User Account

All Pages

Differential analysis, Cost Accounting

Assignment Help:
West Industries is a highly decentralized corporation with independent operating divisions.
Each division is evaluated and rewarded based on its total net income. One of the divisions,
Visic, manufactures and sells air conditioners. Visic is projecting sales of 17,400 for next year.
Another division, Weber, makes and sells compressors. Its projected income statement for
next year follows:
Weber Division
Pro forma income statement
For next year
Per unit Total
Sales revenues $100 $ 6,400,000
Less cost of goods sold:
Direct materials 12 768,000
Direct labour 8 512,000
Variable overhead 10 640,000
Fixed overhead 11 704,000
41 2,624,000
Gross profit 59 3,776,000
Operating expenses:
Variable selling expenses 6 384,000
Fixed selling expenses 4 256,000
Fixed administrative expenses 7 448,000
17 1,088,000
Pre-tax net income $ 42 $ 2,688,000
Weber has the capacity to produce 75,000 compressors annually. Visic currently purchases
compressors from an outside source at $70, and proposes that Weber transfer compressors to
it at a transfer price of $50. The Visic manager justified the low bid based on some cost
savings that should be realized if compressors are transferred. Because specifications for this
compressor are slightly different from Weber’s standard model, $1.50 of direct materials cost
per compressor can be saved and no variable selling expenses will be incurred on
compressors transferred.
Required:
a) Compute the minimum transfer price Weber should accept.
b) Compute the estimated effect on Weber’s net income if the 17,400 compressors are
transferred at $50 each.
c) Determine whether it would be in West Industries’ best interest for Weber to transfer
compressors at $50 each.

Related Discussions:- Differential analysis

Marvin''s motors company (mmc) manufactures outboard, Marvin's Motors Compa...

Marvin's Motors Company (MMC) manufactures outboard motors for use on small to medium sized boats. MMC produces three models: the Standard, the Deluxe and the Performance. The comp

Change in useful life for deperciation, A machine originally had an estimat...

A machine originally had an estimated useful life of 5 years, but after 3 complete years, it was decided that the original estimate of useful life should have been 10 years. At tha

Change in working capital, Current assets 180.00   ...

Current assets 180.00   232.00 Less: Current Liabilities 80.00   105.00 Working Capital

Changes in variable cost and selling price per unit, Changes in Variable Co...

Changes in Variable Cost and Selling Price per Unit The contribution sales ratio is affected by any change in variable cost or selling price per unit. This ratio is a mea

Mamufactuaring account, for the year ended31st dec 2008manufacturing accoun...

for the year ended31st dec 2008manufacturing accountshowing costof row material,manufacturing expenses and the cost of goods manufactured& tradind account where stock of row mater

Statements on tax standards, Compare the American Institute of CPAs' (AICPA...

Compare the American Institute of CPAs' (AICPA) Statements on Tax Standards (SSTS) and the Treasury Department Circular 230 rules to practice before the Internal Revenue Service (I

Calculate the fixed costs to the two products, Herrestad Company does produ...

Herrestad Company does produce and sell two products and the details below will be used to prepare a segmented income statement (showing the income for each product and the total)

Example of job order costing, Example of Job Order Costing The giv...

Example of Job Order Costing The given transactions were made by a company in the month of December. Direct Materials a) 8,000/- was bought on credit, out of these

Integrated ledger system, Integrated Ledger System An integrated accou...

Integrated Ledger System An integrated account ledger system, which has a number of features that may be viewed as preferable to the interlocking ledger system. In present dec

306, creating a decision treeplan

creating a decision treeplan.

Write Your Message!

Captcha
Order Assignment

Featured Services

Order Now

Popular Subjects

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +91-977-207-8620

Phone: +91-977-207-8620

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd