Faculty of Business and Economics

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.

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?

(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?

Element of Marking Highly Satisfactory Pass

Complete, accurate, comprehensive and insightful/innovative

Satisfactory Pass

Complete but not fully accurate, comprehensive or insightful

Below Standard/Unsatisfactory

Incomplete or inaccurate

A+

85-100%

A

78-84%

B+

71-77%

B

64-70%

C+

57-63%

C

50-56%

D

40-49%

E

<40%

Contribution margin calculation

(9 marks)

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 all the components of contribution margin with partially correct figures for the two divisions and the firm as a whole. 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.
Transfer price calculation

(5 marks)

Clear indication of the components of transfer price with full to partial correct figures for both the minimum and maximum transfer price. Clear indication of the components of transfer price with partially correct figures for both the minimum and maximum transfer price. Unclear indication of the components of transfer price with partially correct and incorrect figures for both the minimum and maximum transfer price.
Decision making with the new transfer pricing policy

(5 marks)

Fully and partially accurate decision making concerning the new transfer pricing policy with fully and partially correct financial information to substantiate the decision. Partially accurate decision making concerning the new transfer pricing policy with partially correct financial information to substantiate the decision. Partially accurate and incorrect decision making concerning the new transfer pricing policy with partially correct and incorrect financial information to substantiate the decision.
Decision making with the new transfer pricing policy

(4 marks)

Fully and partially accurate decision making concerning the new transfer pricing policy with fully and partially correct quantity and transfer price. Partially accurate decision making concerning the new transfer pricing policy with partially correct quantity and transfer price. Partially accurate and incorrect decision making concerning the new transfer pricing policy with partially correct and incorrect quantity and transfer price.
Firm wide contribution margin with the new Transfer pricing policy

(5 marks)

Fully and partially accurate decision making concerning the new transfer pricing policy with fully and partially correct contribution margin figure. Partially accurate decision making concerning the new transfer pricing policy with partially correct contribution margin figure. Partially accurate and incorrect decision making concerning the new transfer pricing policy with partially correct and incorrect contribution margin figure.
Online submission requirement

(2 marks)

Fully and partially adhere to the submission requirements Partially adhere to the submission requirements Partially adhere and does not fully adhere to the submission requirements.

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