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

Operating cycle of a merchandiser, Explain and illustrate with your own exa...

Explain and illustrate with your own example the operating cycle of a merchandiser.   Explain and  illustrate the differences between a multiple-step income statement and a single

Regression analysis- linear cost function, given the following : Constan...

given the following : Constant $21,800 Std.error of Y Est. 4,500 R squared 0.7832 Observations # 22 X coefficient 11.75 Std.error of Coef.

How long does it acquire to implement fca?, It takes about two to three yea...

It takes about two to three years to fully execute FCA and get all employees comfortable with it. Even then, the process will still develop. In Greensboro, North Carolina, it took

An impact on the breakeven, We've all experienced (or heard about) the chal...

We've all experienced (or heard about) the challenges that the airlines have been facing. Read the Zacks Investment Research article, "Airline Industry Stock Outlook - August 2012"

Relationship between cost accounting and business enterprise, Relationship ...

Relationship between Cost Accounting and Business Enterprise Cost accounting, like will be mentioned later to adopts a cost center approach to accounting for costs. A cost cen

Calculate the equivalent units of production, A company manufactures two pr...

A company manufactures two products, Product A manufactured in Process Y and Product B manufactured in Process Z. The following information is available for a period:

The weaknesses of an incremental budgeting system, Traditional budgeting  s...

Traditional budgeting  systems are  incremental  in nature and  tend  to  focus on  cost  centres.  Activity-based  budgeting  links  business  planning  to  the  budgeting  proces

Calculate the loss in consumer surplus, (a) Calculate the number of US impo...

(a) Calculate the number of US imports with and without the tariff. (b) Calculate the dead weight loss of the tariff. (c) Calculate the loss in consumer surplus resulting fro

Explain the principles of kaizen costing, SD manufactures and sells a small...

SD manufactures and sells a small range of timber based  products. The main differences b/w the products are their size and the type of timber they used. SD prepares annual budgets

Variable cost computation, cite some example on how to to calculate variabl...

cite some example on how to to calculate variable cost

Write Your Message!

Captcha
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!

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