Lamothe Solutions is a management consulting firm. Its Business Division advises firms on the adoption and use of financial systems. Civic Division consults with state and local governments. Civic Division has a client that is interested in implementing a new costing system in its public works department. The division's head approached the head of Business Division about using one of its associates. Corporate Division charges clients $815 per hour for associate services, the same rate other consulting companies charge. The Civic Division head complained that it could hire its own associate at an estimated variable cost of $415 per hour, which is what Business pays its associates. Required: a. What is the maximum price that Civic Division should pay? b. What is the maximum transfer price that Business Division should obtain for its services, assuming that it is operating at capacity? c-1. Is there any change in maximum price as indicated in part (a), if Business Division had idle capacity? c-2. Is there any change in maximum transfer price as indicated in part (b), if Business Division had idle capacity?

Lamothe Solutions is a management consulting firm. Its Business Division advises firms on the adoption and use of financial systems. Civic Division consults with state and local governments. Civic Division has a client that is interested in implementing a new costing system in its public works department. The division's head approached the head of Business Division about using one of its associates. Corporate Division charges clients $815 per hour for associate services, the same rate other consulting companies charge. The Civic Division head complained that it could hire its own associate at an estimated variable cost of $415 per hour, which is what Business pays its associates. Required: a. What is the maximum price that Civic Division should pay? b. What is the maximum transfer price that Business Division should obtain for its services, assuming that it is operating at capacity? c-1. Is there any change in maximum price as indicated in part (a), if Business Division had idle capacity? c-2. Is there any change in maximum transfer price as indicated in part (b), if Business Division had idle capacity?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Lamothe Solutions is a management consulting firm. Its Business Division advises firms on the adoption and use of financial systems. Civic Division consults with state and local governments. Civic Division has a client that is interested in implementing a new costing system in its public works department. The division's head approached the head of Business Division about using one of its associates. Corporate Division charges clients $780 per hour for associate services, the same rate other consulting companies charge. The Civic Division head complained that it could hire its own associate at an estimated variable cost of $380 per hour, which is what Business pays its associates. Suppose that Civic Division will charge the client interested in implementing a costing system by the hour based on cost plus a fixed fee, where the cost is primarily the consultant's hourly pay. Assume also that Civic Division cannot hire additional consultants. That is, if it is to do this job, it will need…
Lamothe Solutions is a management consulting firm. Its Business Division advises firms on the adoption and use of financial systems. Civic Division consults with state and local governments. Civic Division has a client that is interested in implementing a new costing system in its public works department. The division's head approached the head of Business Division about using one of its associates. Corporate Division charges clients $770 per hour for associate services, the same rate other consulting companies charge. The Civic Division head complained that it could hire its own associate at an estimated variable cost of $370 per hour, which is what Business pays its associates. Required: a. What is the maximum price that Civic Division should pay? b. What is the maximum transfer price that Business Division should obtain for its services, assuming that it is operating at capacity?
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Speed Racer in Victoria makes bicycles for people of all ages. The frames division makes and paints the frames and supplies them to the assembly division where the bicycles are assembled. Speed Racer is a successful and profitable corporation that attributes much of its success to its decentralized operating style. Each division manager is compensated on the basis of division operating income. The assembly division currently acquires all its frames from the frames division. The assembly division manager could purchase similar frames in the market for $480. The frames division is currently operating at 80% of its capacity of 4,000 frames (units) and has the following details: Voltage Regulator Direct materials ($150 per unit x 320 units) $480,000 Direct manufacturing labour ($60 per unit x 3,200 units) 192,000 Variable manufacturing overhead costs ($30 per unit × 3,200 units) 96,000 Fixed manufacturing overhead costs $624,000 All the frames division’s…
Speed Racer in Victoria makes bicycles for people of all ages. The frames division makes and paints the frames and supplies them to the assembly division where the bicycles are assembled. Speed Racer is a successful and profitable corporation that attributes much of its success to its decentralized operating style. Each division manager is compensated on the basis of division operating income. The assembly division currently acquires all its frames from the frames division. The assembly division manager could purchase similar frames in the market for $480. The frames division is currently operating at 80% of its capacity of 4,000 frames (units) and has the following details: Voltage Regulator Direct materials ($150 per unit x 320 units) $480,000 Direct manufacturing labour ($60 per unit x 3,200 units) 192,000 Variable manufacturing overhead costs ($30 per unit × 3,200 units) 96,000 Fixed manufacturing overhead costs $624,000 All the frames division’s…