Problem 8-4A Word Wizard is a publishing company with a number of different book
ID: 2563199 • Letter: P
Question
Problem 8-4A Word Wizard is a publishing company with a number of different book with a number of Press. The book lines and the printing operation each operate as a separate proft center. The printing lines. Each line has contracts with a number of different authors. The company also owns a printing operation called Quick operation eams revene by . i ting books by authors under contra·th the bo k ines seed contract with other companies. The printing operation bills out at $o.01 per page, and a typical book requires 500 pages of print. A manager from Business Books, one of the Word Wizard's book lines, has approached the printers $0.009 per page. The printing operation's variable cost per page is s0.004. manager of the printing operation offering to pay $0.007 per page for 1,500 copies of a 500-page book. The book line pays outside Determine whether the printing should be done internally or externally, and the appropriate transfer price, under each of the following stuations Assume that the printing operation is booked solid for the next 2 years, and it would have to cancel an obligation with an outside customer in order to meet the needs of the internal division.(Round Transfer price to 4 declmal places, e.g.0.1892) Printing should be done Internaly Minimum transfer price Assume that the printing operation has available capacity.(Round Transfer price to 4 decimal places o.g. 0.1892.) Printing should be done Esternaly Minimum transfer price top management foroes the printing operation to accept the 50.007 per page transfer price when t has ate the change i no available capacity, (Round answers to 2 decimal places, e.g. 10.50.) s t the printing operation the business books $Explanation / Answer
Billing 0.01 per page No of Pages 500 Offer 0.007 per page no of Copies 1500 no of pages 500 Outside Printing 0.009 Inside Printing V.C 0.004 a If Printing inside by canceling the obligation of the outside customer No of Pages to Print 7,50,000 i.e. 500*1500 If company print inside company have to forgo following revenue 750000*.01 7,500 And company will get following revenue 750000*.007 5,250 Loss if company print inside (2,250) i.e. 5250-7500 Company is losing $2250 a if print inside, so minimum transfer price if print inside .007+2250/750000 0.010 b If Printing outside provided the company have available capacity No of Pages to Print 7,50,000 i.e. 500*1500 Loss to the company due to print outside and the company have available capacity 750000*(.007-.009) (1,500) Company is losing $ 1500 if print outside, so minimum transfer price if print outside .007+1500/750000 0.009 d Change in the contribution margin to each division and to the company as whole To Printing Operation (2,250) To Business Books NIL To the company (2,250)