to K2 at a price of $ 14.50/kg. The manager at K1 claims that the cost of producing KXB has recently increased, proposing a new price of S 16.00/Kg, which is the one he can realize by selling the ingredient to the market. K2 has recently approached an external supplier who can supply the 10,000Kgs at a cost of $ 15.10. The cost figures for producing a Kg of KXB at K1 are: Direct Materials.. Direct Labor.. Variable Overhead Fixed Overhead.. $5.15 4.35 0.50 1.60 Required: a. Based on the figures above, what is the current acceptable range of prices for the 10,000Kgs? What would be the net loss or saving for the company as a whole if, on the other hand, Kl expects to forgo 5,000Kgs that could be sold at $ 16.00/Kg to external customers? b. Now assume that, to push external sales of KXB by K1, Gispx Chemicals Co. forces K1 to invest in additional capacity. The additional capacity will translate in an increase of variable overhead by 50% and an increase of fixed overhead by 75% relative to the current figures. If the investment is made, K1 would have capacity to serve both K2 and the external market. the acceptable range of transfer prices? Should K1 continue to produce the 10,000Kgs to K2? Under these circumstances, what is

to K2 at a price of $ 14.50/kg. The manager at K1 claims that the cost of producing KXB has recently increased, proposing a new price of S 16.00/Kg, which is the one he can realize by selling the ingredient to the market. K2 has recently approached an external supplier who can supply the 10,000Kgs at a cost of $ 15.10. The cost figures for producing a Kg of KXB at K1 are: Direct Materials.. Direct Labor.. Variable Overhead Fixed Overhead.. $5.15 4.35 0.50 1.60 Required: a. Based on the figures above, what is the current acceptable range of prices for the 10,000Kgs? What would be the net loss or saving for the company as a whole if, on the other hand, Kl expects to forgo 5,000Kgs that could be sold at $ 16.00/Kg to external customers? b. Now assume that, to push external sales of KXB by K1, Gispx Chemicals Co. forces K1 to invest in additional capacity. The additional capacity will translate in an increase of variable overhead by 50% and an increase of fixed overhead by 75% relative to the current figures. If the investment is made, K1 would have capacity to serve both K2 and the external market. the acceptable range of transfer prices? Should K1 continue to produce the 10,000Kgs to K2? Under these circumstances, what is

Managerial Accounting: The Cornerstone of Business Decision-Making

7th Edition

ISBN:9781337115773

Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Chapter11: Performance Evaluation And Decentralization

Section: Chapter Questions

Problem 16BEA

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