Xn company manufacture and sell cricket bats. Xn company has two departments Dept. P (...
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Xn company manufacture and sell cricket bats. Xn company has two departments Dept. P ( making of cricket bats from wood) and Dept. Q ( add the cover and complete the product with the brand name printed). Dept P sells wooden Bats to Dept Q.
Dept. Q completes the product and sells the finished product to the external customer for OMR 70 per unit. Further information is as follows:
Dept. P Dept-Q
Number of units transferred/sold Material Cost per unit Labour Cost Other Variable costs per unit Annual Fixed costs
400 OMR 5
OMR 4 OMR 1
OMR 4000
400 OMR 3 OMR 3 OMR 1
OMR 3000
Required: i) Calculate Transfer Price based on Marginal Cost + 20%
ii) Calculate the budgeted annual profit for division P and Q and for Company as a whole under Marginal Cost + 20%
iii) Calculate Transfer Price based on Full Cost + 25%
iv) Calculate the budgeted annual profit for division P and Q, and for Company as a whole under Full Cost + 25%
v) Evaluate both divisional profits from the perspective of marginal and full cost transfer pricing and company.
vi) Discuss how the firm can achieve goal congruence using transfer pricing?
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