SUPPORTING COMPUTATIONS

. Answer: C

New Operating Profit (P200,000 + P40,000) P240,000

Less Required Returns (P1,250,000 x 0.12) 150,000

New Residual Income P 90,000

. Answer: D

The Fabrication division has excess capacity, therefore the division can transfer the units at a minimum transfer price of P50

. Answer: D

The minimum Davy would accept is the opportunity cost to make the product, which would be the variable cost of P25.

. Answer: A

The minimum transfer price is P60 because the Division X has excess capacity

. Answer: C

The profit of the company will decrease by P35,000 which is the difference between the variable (relevant) cost and the purchase price.

(P9.00 P5.5) x 10,000 units = P35,000

. Answer: A

There is no change in the profit because the Motor Division did not buy from the outside supplier

. Answer: B

The division is operating at capacity (zero excess capacity). Any quantity of production to be transferred to the Division Z must be at
P13; Any price below P13, as transfer price, would decrease its profit.

. Answer: D

Selling price (market price) P120

Less avoidable selling expense 15 x 20% 3

Minimum transfer price P117

. Answer: B

The optimal transfer price is P4 per unit, which represents the value of using the black steel in the Builders Division because the black
steel will cost P2 to manufacture and each unit used internally is a unit that cannot be sold to external buyers. If an intermediate market
exists, the optimal transfer price is the market price.

. Answer: B

The division is operating at capacity, therefore, the minimum transfer price must be the amount of selling price, less avoidable selling
expense.

Selling price P90

 Avoidable selling expense 3

Net Price 87

. Answer: D

Selling price charged by Compo Division P300

Selling price charge by Chips Division 125

Additional selling price P175

Less additional processing cost by Compo 100

Additional profit per unit P 75

Additional profit: 1,000 x P75 P75,000

. Answer: C

Final selling price by Compo P300

Less additional processing cost 100

Maximum material cost (transfer price) P200

At a transfer price of P200, Compo will not realize any profit on the additional 1,000 units

. Answer: A

The actual cost is the sum of unit variable cost plus fixed cost divided by actual units produced.

50 + (8000 200) = P90

. Answer: C

Variable cost P 50

Markup (P50 x 1.3) 65

Transfer price P115

. Answer: D

Budgeted full cost P40 + (P8,000 100) P120

Markup (P120 x 0.3) 36

Transfer price P156