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Kutwa Ltd. is a manufacturing company with two divisions; A and B. Division A manufactures a single standard product K, some of which is sold externally...

      

Kutwa Ltd. is a manufacturing company with two divisions; A and B. Division A
manufactures a single standard product K, some of which is sold externally and the
remainder used as an input in division B in the manufacture of product M.
The unit production costs of product K are given below:
fig2875944.png
The manager of division B suggests that based on the above results, a transfer price of Shs.
120 would offer division A a reasonable contribution towards its fixed cost and earn
division B a reasonable profit. This would lead to an increase in the output and overall
profitability of the company.
Required:
( a) Calculate the effect of the existing transfer pricing system on the company‟s profits.
( b) Calculate the effect of adopting the transfer price of Shs. 120 on the company‟s
profits.

  

Answers


Kavungya
fig2975947.png
fig3075950.png
Kavungya answered the question on May 7, 2021 at 06:50


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