Fundamentals Of Cost Accounting (6th Edition)
6th Edition
ISBN: 9781259969478
Author: WILLIAM LANEN, Shannon Anderson, Michael Maher
Publisher: McGraw Hill Education
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Textbook Question
Chapter 15, Problem 36E
Segment Reporting
Leapin’ Larry’s Pre-Owned Cars has two divisions, Operations and Financing. Operations is responsible for selling Larry’s inventory as quickly as possible and purchasing cars for future sale. Financing Division takes loan applications and packages loans into pools and sells them in the financial markets. It also services the loans. Both divisions meet the requirements for segment disclosures under accounting rules.
Operations Division had $17 million in sales last year. Costs, other than those charged by Financing Division, totaled $13 million. Financing Division earned revenues of $4 million from servicing loans and incurred outside costs of $5 million. In addition, Financing charged Operations $2 million for loan-related fees. Operations’s manager complained to Larry that Financing was charging twice the commercial rate for loan-related fees and that Operations would be better off sending its buyers to an outside lender.
Financing’s manager replied that although commercial rates could be lower, servicing Larry’s loans is more difficult, thereby justifying the higher fees.
Required
- a. What are the reported segment operating profits for each division, ignoring income taxes and using the $2 million transfer price for the loan-related fees?
- b. What are the reported segment operating profits for each division, ignoring income taxes and using a $1 million commercial rate as the transfer price for the loan-related fees?
- c. Write a memo to Larry suggesting an appropriate transfer pricing policy along with your reasons.
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Leapin’ Larry’s Pre-Owned Cars has two divisions, Operations and Financing. Operations is responsible for selling Larry’s inventory as quickly as possible and purchasing cars for future sale. Financing Division takes loan applications and packages loans into pools and sells them in the financial markets. It also services the loans. Both divisions meet the requirements for segment disclosures under accounting rules.
Operations Division had $74 million in sales last year. Costs, other than those charged by Financing Division, totaled $32 million. Financing Division earned revenues of $23 million from servicing loans and incurred outside costs of $24 million. In addition, Financing charged Operations $22 million for loan-related fees. Operations’s manager complained to Larry that Financing was charging twice the commercial rate for loan-related fees and that Operations would be better off sending its buyers to an outside lender.
Financing's manager replied that although commercial…
Leapin’ Larry’s Pre-Owned Cars has two divisions, Operations and Financing. Operations is responsible for selling Larry’s inventory as quickly as possible and purchasing cars for future sale. Financing Division takes loan applications and packages loans into pools and sells them in the financial markets. It also services the loans. Both divisions meet the requirements for segment disclosures under accounting rules.
Operations Division had $32 million in sales last year. Costs, other than those charged by Financing Division, totaled $18 million. Financing Division earned revenues of $9 million from servicing loans and incurred outside costs of $10 million. In addition, Financing charged Operations $8 million for loan-related fees. Operations’s manager complained to Larry that Financing was charging twice the commercial rate for loan-related fees and that Operations would be better off sending its buyers to an outside lender.
Financing's manager replied that although commercial rates…
Customers as a Cost Object
Morrisom National Bank has requested an analysis of checking account profitability by customer type. Customers are categorized according to the size of their account: low balances, medium balances, and high balances. The activities associated with the three different customer categories and their associated annual costs are as follows:
Opening and closing accounts
$300,000
Issuing monthly statements
450,000
Processing transactions
3,075,000
Customer inquiries
600,000
Providing automatic teller machine (ATM) services
1,680,000
Total cost
$6,105,000
Additional data concerning the usage of the activities by the various customers are also provided:
Account Balance
Low
Medium
High
Number of accounts opened/closed
22,500
4,500
3,000
Number of statements issued
675,000
150,000
75,000
Processing transactions
27,000,000
3,000,000
750,000
Number of telephone minutes
1,500,000
900,000
600,000
Number of ATM transactions
2,025,000…
Chapter 15 Solutions
Fundamentals Of Cost Accounting (6th Edition)
Ch. 15 - What is the purpose of a transfer price?Ch. 15 - Prob. 2RQCh. 15 - Prob. 3RQCh. 15 - What are the limitations of market-based transfer...Ch. 15 - Prob. 5RQCh. 15 - When would you advise a firm to use prices other...Ch. 15 - What is the basis for choosing between actual and...Ch. 15 - What are the advantages and disadvantages of a...Ch. 15 - Prob. 9RQCh. 15 - Why is transfer pricing important in tax...
Ch. 15 - Prob. 11RQCh. 15 - What should an effective transfer pricing system...Ch. 15 - Prob. 13CADQCh. 15 - Prob. 14CADQCh. 15 - Refer to the Business Application item, Transfer...Ch. 15 - Prob. 16CADQCh. 15 - Prob. 17CADQCh. 15 - In what ways is transfer pricing like cost...Ch. 15 - In Chapter 12, we discussed corporate cost...Ch. 15 - Prob. 20ECh. 15 - Prob. 21ECh. 15 - Apply Transfer Pricing Rules Best Practices, Inc.,...Ch. 15 - Prob. 23ECh. 15 - Prob. 24ECh. 15 - Evaluate Transfer Pricing System Southwest...Ch. 15 - Prob. 26ECh. 15 - Evaluate Transfer Pricing System Carmen Seville...Ch. 15 - Prob. 28ECh. 15 - Prob. 29ECh. 15 - Prob. 30ECh. 15 - Prob. 31ECh. 15 - Prob. 32ECh. 15 - Prob. 33ECh. 15 - Prob. 34ECh. 15 - Prob. 35ECh. 15 - Segment Reporting Leapin Larrys Pre-Owned Cars has...Ch. 15 - Segment Reporting Perth Corporation has two...Ch. 15 - Prob. 38PCh. 15 - Prob. 39PCh. 15 - Prob. 40PCh. 15 - International Transfer Prices Skane Shipping Ltd....Ch. 15 - International Transfer Prices Badger Air is an...Ch. 15 - Prob. 43PCh. 15 - Prob. 44PCh. 15 - Prob. 45PCh. 15 - Weaver, Inc., is a large consumer products...Ch. 15 - Western States Supply, Inc. (WSS), consists of...Ch. 15 - Prob. 48PCh. 15 - Midwest Entertainment has four operating...Ch. 15 - Prob. 50PCh. 15 - Mathes Corporation manufactures paper products....Ch. 15 - Refer to the data in Problem 15-51. At the end of...Ch. 15 - CHS is a large multidivision firm. One division,...Ch. 15 - Prob. 54PCh. 15 - Prob. 56IC
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