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

Labour variances, L ABOUR VARIANCES Labour Cost Variance (LCV) De...

L ABOUR VARIANCES Labour Cost Variance (LCV) Described by the ICMA, London, 'Labour cost variance is the variation between the standard direct wages specified for the pro

Ms, Goga Ltd is busy building a five-star hotel in the area, they use the p...

Goga Ltd is busy building a five-star hotel in the area, they use the percentage of completion method to determine profits and would like to calculate the profit for the year. dra

What is the contribution margin ratio, Sales: $168,042 Variable Costs: $63,...

Sales: $168,042 Variable Costs: $63,987 Total fixed expenses:$ 75,794 Number units sold per year: 6367 1. What is the contribution margin per unit of your product or service? 2.

Analyzing direct material costs, You are reviewing a cost proposal, which i...

You are reviewing a cost proposal, which includes an $800,200 direct material estimate. After Initial examination of the proposal, you note that there are 500 material items, but y

Cost drivers and predictors, why is determining the cost to manufacture a p...

why is determining the cost to manufacture a product quite a different activity from determining how to control such cost?

Receivables, In most situations this will be essential to grant credit to c...

In most situations this will be essential to grant credit to customers. It may be essential either due to competition or because of the custom of trade. Though, when we grant credi

Calculate the net present value and efficiency , A foreign company plans to...

A foreign company plans to clear several dozen acres of ecologically valuable mangrove swamp in Vietnam for the creation of a shrimp aquaculture facility. This decision will create

introduction of internal rate of return , Introduction of Internal Rate of...

Introduction of Internal Rate of Return The traditional internal rate of return (IRR) method of project selection has been shown to be inferior to the NPV method due to vario

Which of the four types of costs would include ceo''s salary, Which of the ...

Which of the four types of costs would include a CEO's salary? A. Unit-Level B. Batch-Level C. Product Sustaining D. Facility Sustaining

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