University study material for Accounting, Finance & Control in the Management Engineering degree programme at Politecnico di Milano. The document covers: 1 Question 1 – TPS (3 points) Company X has two Divisions: A and B. Division A makes a mechanical component that is highly customized and can be sold only to Division B. The transfer price between the two divisions for the mechanical components is determined based on the
University study material for Accounting, Finance & Control in the Management Engineering degree programme at Politecnico di Milano. The document covers: 1 Question 1 – TPS (3 points) Company X has two Divisions: A and B. Division A makes a mechanical component that is highly customized and can be sold only to Division B. The transfer price between the two divisions for the mechanical components is determined based on the
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1 Question 1 – TPS (3 points) Company X has two Divisions: A and B. Division A makes a mechanical component that is highly customized and can be sold only to Division B. The transfer price between the two divisions for the mechanical components is determined based on the marginal cost plus a mark-up of +70%, where the marginal costs are intended as the variable production costs. You know the following information about the cost structure of the two Divisions: The production costs of Division A, at a standard volume of 1,000,000 mechanical components per year, are: Direct material costs, including all the materials employed to manufacture the component = 0.65 €/u. Direct labour costs, including the cost of all the manual operations by workers, and that can be traced directly to the component = 0.3 €/u. Direct manufacturing overheads, which include 0.1 €/u of depreciation cost of the production machines, 0.1 €/u for the plant supervisor, and 0.15 €/u of energy costs that directly depend on the production volumes. The production costs of Division B, at a standard volume of 1,000,000 finished products per year, are: Additional direct material costs, including the cost of materials used for assembling and refining the final product = 0.3 €/u. Direct labour costs, including the cost of all the manual operations by workers, and that can be traced directly to the product = 0.8 €/u. Direct manufacturing overheads, which include 0.1 €/u of depreciation cost of the production machines, 0.15 €/u for the plant supervisor and 0.1 €/u of energy costs that directly depend on the production volumes. You also know that the selling price of the finished product sold by Division B is 5 €/u and that all the workers of Company X are permanently hired. Based on the available…
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