c) d) The directors of Fido Dido agreed that a machine that would increase annual production capacity to 50,000,000 cans
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- C D The Directors Of Fido Dido Agreed That A Machine That Would Increase Annual Production Capacity To 50 000 000 Cans 1 (18.13 KiB) Viewed 12 times
- C D The Directors Of Fido Dido Agreed That A Machine That Would Increase Annual Production Capacity To 50 000 000 Cans 2 (18.13 KiB) Viewed 12 times
- C D The Directors Of Fido Dido Agreed That A Machine That Would Increase Annual Production Capacity To 50 000 000 Cans 3 (46.5 KiB) Viewed 12 times
c) d) The directors of Fido Dido agreed that a machine that would increase annual production capacity to 50,000,000 cans at Division X will be purchased. The purchase of this machine will increase the net assets of Division X by RM500,000. Assume that there is no impact on unit variable costs or fixed costs resulting from this purchase. Calculate the minimum transfer price per can that Division X could charge for the 20 million cans required by Division Y in order for Division X to achieve the target ROI. (7 marks) Explain ONE (1) non-financial measure that could also be used to monitor the performance of the manager of Division Y against the objectives of Fido Dido. (2 marks). Tota 22 marks]
Question 5 Fido Dido is a producer of soft drinks. The company has two divisions: Division X and Division Y. Division X manufactures metal cans that are sold to Division Y and also to external customers. Division Y produces soft drinks and sells them to external customers in the cans that it obtains from Division X. Fido Dido is a relatively new company. Its objective is to grow internationally and challenge the existing global soft drinks producers. Fido Dido aims to build its brand based on the distinct taste of its soft drinks. Division X annual budget information: Market selling price per 1,000 cans Variable costs per can Fixed costs Net assets Division Y annual budget information: Selling price per canned soft drink Variable costs per canned soft drink (excluding the can) Cost of a can (from Division X) Fixed costs Net assets. Sales volume Productivity capacity External demands for cans Demand from Division Y Required: a) b) (RM) 0.13 0.04 2,400,000 4,000,000 40,000,000 cans 38,000,000 cans 20,000,000 cans Transfer pricing policy: Division X required to satisfy the demand of Division Y before selling cans externally. The transfer price for a can is full cost plus 20%. (RM) 0.50 Performance Management Targets: Divisional performance is assessed on Return on Investment (ROI) and Residual Income (RI). Divisional managers are awarded a bonus if they achieve the annual ROI target of 25%. Fido Dido has a cost of capital of 7%. Calculate both the ROI and RI for Division X and Division Y. 0.15 At transfer price 1,750,000 12,650,000 20,000 canned soft drinks Calculate profit for each division detailing sales and costs, showing external sales and inter-divisional transfers separately where appropriate. (9 marks) (4 marks)