UBAM3013 MANAGEMENT ACCOUNTING

MAY 2022 Tutorial

UNIVERSITI TUNKU ABDUL RAHMAN

FACULTY OF BUSINESS AND FINANCE

ACADEMIC YEAR 2022/2023

TRIMESTER MAY 2022

BACHELOR OF BUSINESS ADMINISTRATION (HONS)

BACHELOR OF FINANCE (HONS)

TUTORIAL 13: Transfer Pricing and Cost Management

Answer all questions given.

Discussion questions.

1. Ibby Limited, has two division; Audio division and Radio division. Audio
division manufactures a speaker that is used by various audio products. Audio
division output is sold to outside manufacturer and Radio division. The Audio
division charge RM160 per each speaker to the outside manufacturer. The
cost per speaker is:

RM
Variable 126
cost
Fixed cost 24
Total cost 150

*Based on a capacity of 15,000 speakers per year

The Radio division will need 4,000 speakers per year and it has received a
quote of RM145 per speaker from another outside supplier.

Required:

(i) Assume that the Audio division is now selling 11,500 speakers per year to
outside customers. Determine the acceptable range, if any, for the transfer
price between the two divisions.

(ii) From the standpoint of the entire company, should the transfer take place?
Justify your answer.
 UBAM3013 MANAGEMENT ACCOUNTING
MAY 2022 Tutorial

2. Collyer Products Inc., has a Valve Division that manufactures and sells a
standard valve:

Capacity in units 100,000

Selling price to outside customers RM30
Variable costs per unit RM16
Fixed cost per unit (based on capacity) RM9

The company has Pump Division that could use this valve in one of its
pumps. The Pump Division is currently purchasing 10,000 valves per year
from an overseas supplier at a cost of RM29 per valve.

Required:
a. Assume that the Valve Division has enough idle capacity to handle all of
the Pump Division’s needs. What is the acceptable range, if any for the
transfer price between the two divisions?
b. Assume that the Valve Division is selling all the valve that it can produce
to outside customers. What is the acceptable range, if any, for the
transfer price between the two divisions?

3. Discuss TWO (2) disadvantages of transfer pricing set at full cost to the
selling division.

4. You are required to compare and contrast Kaizen costing and Target costing,
by explaining their objectives, how they work and how it would contribute to
a cost reduction programme.

5. Explain the role of benchmarking within the cost management framework.