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

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

Application of a hand-held clinical thermometer, In an application of a han...

In an application of a hand-held clinical thermometer for the National Health Service it is required to use disposable temperature sensors and digital read out of temperature betwe

Business process mapping, Using some variation of business process mapping,...

Using some variation of business process mapping, graph out the mango concentrate supply chain focusing on when cost is added to the supply chain. (i.e. Display/draw the process

Calculate the retained profit, Harriet Ltd is a trading company set up a nu...

Harriet Ltd is a trading company set up a number of years ago with 5,000 £1ordinary shares issued at par. In order to expand the production facilities it needs to raise a further £

Specific order costing, Specific Order Costing This is a broad costing...

Specific Order Costing This is a broad costing system that is applicable where work jobs consist of separate jobs, batches or contracts.  Every job or contract or batch is a c

Marginal costing, MARGINAL COSTING As per the Chartered Institute of Ma...

MARGINAL COSTING As per the Chartered Institute of Management Accountants, London, the phrase 'Marginal cost' means - 'the amount at every given volume of output through which

Calculate average cost and marginal cost, Farmer Dorr figures that her fixe...

Farmer Dorr figures that her fixed costs are $2,000, and the relevant portion of her total cost curve is:                                           Thousands of

Variance, What is a standard and acceptable variance

What is a standard and acceptable variance

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