Desa Waja Berhad is a Malaysian multinational company. It has three operating divisions,Components Division, Goods Division and Products Division. Both Components Divisionand Goods Division are located in Malaysia whereas Product Division is situated inIndonesia.The Components Division produces Part X that is used by the Goods Division. The cost ofmanufacturing PartX is as follows:RMDirect materials10Direct labourVariable overhead3Fixed overhead*20*Based on a practical volume of 200,000 parts.Total costOther costs incurred by the Components Division are as follows:RM500,000RM1 per unitFixed selling and administrativeVariable sellingPart X usually sells for between RM28 and RM30 in the external market. Currently, theComponents Division is selling it to external customers for RM29. The division is capableof producing 200,000 units of the part per year; however, because of a weak economy, only150,000 parts are expected to be sold during the coming year. The variable selling expensesare avoidable if the part is sold internally.The Goods Division has been buying the same part from an external supplier for RM28. Itexpects to use 50,000 units of the part during the coming year. The manager of the GoodsDivision has offered to buy 50,000 units from the Components Division for RM18 per unit.Required:i)Determine the minimum transfer price that the Components Division would accept.Determine the maximum transfer price that the manager of the Goods Divisionii)would pay.iii)Should an internal transfer take place? Why or why not? If you were the manager ofthe Components Division, would you sell the 50,000 components for RM18 each?Explain.

Component Division Good Division Product Division Component Division…

i) Determine the minimum transfer price that the Components Division would accept. Determine the maximum transfer price that the manager of the Goods Division ii) would pay. Should an internal transfer take place? Why or why not? If you were the manager of the Components Division, would you sell the 50,000 components for RM18 each? Explain. iii)

i) Determine the minimum transfer price that the Components Division would accept. Determine the maximum transfer price that the manager of the Goods Division ii) would pay. Should an internal transfer take place? Why or why not? If you were the manager of the Components Division, would you sell the 50,000 components for RM18 each? Explain. iii)

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter4: Activity-based Costing

Section: Chapter Questions

Problem 36P: Reducir, Inc., produces two different types of hydraulic cylinders. Reducir produces a major...

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