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Grissell Motors manufactures specialty tractors. It has two divisions: a Tractor Division and a Tire Division. The Tractor Division can use the tires produced by the Tire Division. The market price per tire is $90. The Tire Division has the following costs per tire (Click the icon to view the costs and additional information.) Read the requirements. Requirement 1. Assume that the Tire Division has excess capacity, meaning that it can produce tires for the Tractor Division without giving up any of its current tire sales to outsiders. If Grissell Motors has a negotiated transfer price policy, what is the lowest acceptable transfer price? What is the highest acceptable transfer price? (Assume the $3 includes only the variable portion of conversion costs.) The lowest acceptable transfer price is the Tire Division's - X More info Requirements Direct material cost per tire $25 Conversion costs per tire $3 (Assume the $3 includes only the variable portion of conversion costs.) Fixed manufacturing overhead cost for the year is expected to total $120,000. The Tire Division expects to manufacture 60,000 tires this year. The fixed manufacturing overhead per tire is S2 ($120,000 divided by 60.000 tires). 1. Assume that the Tire Division has excess capacity, meaning that it can produce tires for the Tractor Division without giving up any of its current tire sales to outsiders. Il Grissell Motors has a negotiated transfer price policy, what is the lowest acceptable transfer price? What is the highest acceptable transfer price? 2. If Grissell Motors has a cost-plus transfer price policy of full absorption cost plus 20%, what would the transfer price be? 3. If the Tire Division is currently producing at capacity (meaning that it is selling every single tire it has the capacity to produce), what would likely be the falrest transfer price strategy to use? What would be the transfer price in this case? Print Done Print Done
Gable Ceramics, a division of LaChut Corporation, has an operating income of $78,000 and total assets of $416,000. The required rate of retum for the company is 12%. The company is evaluating whether it should use return on investment (ROI) or residual income (RI) as a measurement of performance for its division managers. The manager of Gable Ceramics has the opportunity to undertake a new project that will require an investment of $104,000. This investment would earn $15,800 for the company. Read the resulrements Requirement 1. What is the original return on investment (ROI) for Gable Ceramics (before making any additional investmenty? First determine the formula to calculate the ROI ROI Requirements 1. What is the original return on investment (ROI) for Gable Ceramics (before making any additional investment)? 2. What would the ROI be for Gable Ceramics if this investment opportunity were undertaken? Would the manager of the Gable Ceramics division want to make this investment if she were evaluated based on ROI? Why or why not? 3. What is the ROI of the investment opportunity? Would the investment be desirable from the standpoint of LaChut Corporation? Why or why not? 4. What would the residual income (RI) be for Gable Ceramics if this investment opportunity were to be undertaken? Would the manager of the Gable Ceramics division want to make this investment if she were evaluated based on RI? Why or why not? 5. What is the Rl of the investment opportunity? Would the investment be desirable from the standpoint of LaChut Corporation? Why or why not? 6. Which performance measurement method, ROI O RI, promotes goal congruence? Why? Print Done