University of the South Pacific

Faculty of Business and Economics

School of Accounting and Finance
AF201 - Managerial Accounting

Assignment 2
Weighting: The total mark for this assignment is 30 and is worth 6% of your total assessment.

Due date: Friday 5th June at 12:00PM sharp on Moodle. ALL ASSIGNMENTS HANDED
IN AFTER THIS TIME WILL BE REGARDED AS LATE ASSIGNMENTS.

Introduction This assignment will assess your critical thinking, creativity and written
communication. As a future management accountant it is essential to think critically,
creatively and communicate effectively to avoid losing any valuable opportunities to
create value for shareholders and customers.

Furthermore, this assignment addresses learning objectives (5) as depicted on the

course outline.

Instructions: 1.Your assignment MUST be word processed. Hand written assignments are
unacceptable.
2. The assignment must have a cover page and you are to use ONE PAGE ONLY to
present your answers. In total there must be two pages.
3. Please upload your assignment in the appropriate drop box on Moodle.
4. Chapter References: Chapter 12 of the textbook
5. All late assignment will attract a penalty of 10% per day that the assignment is late
(the due date is counted as the first day).
6. Plagiarized assignment will be awarded a Zero (0) mark.

Global Tronics, Inc., manufactures a variety of printers, scanners, and fax Machines in its two divisions:
the Machines Division and the Parts Division. The Parts Division produces electronic Parts that can be
used by the Machines Division. All the Parts this division produces can be sold to outside customers;
however, from the beginning, nearly 90 percent of its output has been used internally. The current policy
requires that all internal transfers of Parts be transferred at full cost.

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Recently, Sasha Lebron, the chief executive officer of Global Tronics, decided to investigate the transfer
pricing policy. He was concerned that the current method of pricing internal transfers might force
decisions by divisional managers that would be suboptimal for the firm. As part of his inquiry, he
gathered some information concerning Part Z35, used by Machines Division in its production of a basic
scanner, Model SC20.

The Machines Division sells 40,000 units of Model SC20 each year at a unit price of $42. Given current
market conditions, this is the maximum price that the division can charge for Model SC20. The cost of
manufacturing the scanner follows:

Part Z35 $6.50

Direct materials 12.50
Direct labor 3.00
Variable overhead 1.00
Fixed overhead 15.00
Total unit cost $38.00

The scanner is produced efficiently, and no further reduction in manufacturing costs is possible.

The manager of the Parts Division indicated that she could sell 40,000 units (the division’s capacity for
this part) of Part Z35 to outside buyers at $12 per unit. The Machines Division could also buy the part for
$ 12 from external suppliers. The Parts Division manager supplied the following details on the
manufacturing cost of the component:

Direct material $2.50

Direct labor 0.50
Variable overhead 1.00
Fixed overhead 2.50
Total unit cost $6.50

REQUIRED

1. Compute the contribution margin for Parts Division, Machines Division, and Global Tronics, Inc.
associated with the sale of Part Z35 and Model SC20. Show ALL workings.

2. Suppose that Sasha Lebron abolishes the current transfer pricing policy and gives division autonomy in
setting transfer prices.

(i) Can you predict what transfer price the manager of the Parts Division will set?

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 (ii)What should the minimum transfer price for this part be?

(iii) What should the maximum transfer price be?

3. Given the new transfer pricing policy, predict how this will affect the production decision for Model
SC20. How many units of Part Z35 will the manager of the Machines Division purchase, either
internally or externally?

4. Given the new transfer price set by the Parts Division and your answer to Requirement 3, how many
units of Part Z35 will be sold externally?

5. Given your answers to Requirements 3 and 4, compute the firm wide contribution margin. What has
happened? Was Sasha ’s decision to grant additional decentralization good or bad? Why?

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Element of Marking
Contribution margin
calculation
(9 marks)
Transfer price calculation
(5 marks)
Decision making with the new
transfer pricing policy
(5 marks)
Decision making with the new
transfer pricing policy
(4 marks)
Firm wide contribution margin
with the new Transfer pricing
policy
(5 marks)
Online submission requirement
(2 marks)
Highly Satisfactory Pass
Complete, accurate, comprehensive and
insightful/innovative
A+ A B+
85-100% 78-84% 71-77%
Clear indication of all the components of
contribution margin with full to partial
correct figures for the two divisions and the
firm as a whole.
Clear indication of the components of transfer
price with full to partial correct figures for
both the minimum and maximum transfer
price.
Fully and partially accurate decision making
concerning the new transfer pricing policy
with fully and partially correct financial
information to substantiate the decision.
Fully and partially accurate decision making
concerning the new transfer pricing policy
with fully and partially correct quantity and
transfer price.
Fully and partially accurate decision making
concerning the new transfer pricing policy
with fully and partially correct contribution
margin figure.
Fully and partially adhere to the submission
requirements
Satisfactory Pass
Complete but not fully accurate,
comprehensive or insightful
B C+ C D
64-70% 57-63% 50-56%
Clear indication of all the components of
contribution margin with partially correct
figures for the two divisions and the firm
as a whole.
Clear indication of the components of
transfer price with partially correct
figures for both the minimum and
maximum transfer price.
Partially accurate decision making
concerning the new transfer pricing
policy with partially correct financial
information to substantiate the decision.
Partially accurate decision making
concerning the new transfer pricing
policy with partially correct quantity and
transfer price.
Partially accurate decision making
concerning the new transfer pricing
policy with partially correct contribution
margin figure.
Partially adhere to the submission
requirements
Below Standard/Unsatisfactory
Incomplete or inaccurate
E
40-49% <40%
Unclear indication of all the
components of contribution margin
with partially correct and incorrect
figures for the two divisions and the
firm as a whole.
Unclear indication of the components
of transfer price with partially correct
and incorrect figures for both the
minimum and maximum transfer price.
Partially accurate and incorrect
decision making concerning the new
transfer pricing policy with partially
correct and incorrect financial
information to substantiate the
decision.
Partially accurate and incorrect
decision making concerning the new
transfer pricing policy with partially
correct and incorrect quantity and
transfer price.
Partially accurate and incorrect
decision making concerning the new
transfer pricing policy with partially
correct and incorrect contribution
margin figure.
Partially adhere and does not fully
adhere to the submission requirements.
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