Description
A Simple Explanation for Case 2
If the production department makes a product with a variable cost of 50 SAR per unit and could sell it externally for 80 SAR, the opportunity cost is 30 SAR. So:
Minimum Transfer Price: 50 SAR (variable cost) + 30 SAR (opportunity cost) = 80 SAR.
Maximum Transfer Price: 80 SAR (market price).
Thus, the transfer price should be between 80 SAR minimum and 80 SAR maximum
Case study (2) Summer Year 2023-2024
Case study (2)
course
Financial Decision Making (MB 500)
Class instructor
Dr. Hossam Sharawi
Section
Accounting & Finance
06/08/2024
JIC
Exam`s Date
College
Student Name
ID
Number of Exam Pages
2 Pages
Instructor’s Signature
Dr. Hossam Sharawi
Reviewer’s Signature
Instructions:
1- Make sure that your exam sheet is 2 papers including the cover page.
2- Write your name and student ID number in the fields above.
3- Read the exam carefully and answer all the questions.
4- A calculator is allowed.
5- You are not permitted to share calculators or any other materials during the exam .
1st: Knowledge 40% (…Marks)
Question Number
Mark
CLOs
1
4
1.1-1.2
PLOs
Q1
10
Total/K
Question Number
Total/s
Total
4
2nd: Skills 60 % (…Marks)
Mark
CLOs
6
2.1-2.2
10
PLOs
6
3rd : values …% (…Marks)
Total/v
Total
Mark
1
The First question: Answer the following case study
10 Marks
ABC Company is a computer products manufacturer with a CPU division that produces both
standard and special CPUs. The following data is given:
– Production capacity: 100,000 units
– Variable cost per unit: 16 riyals
– Fixed cost per unit: 9 riyals
– Selling price in the market: 30 riyals
The manager of the Hard desk division wants to buy 10,000 standard CPUs from the CPU division
instead of the external supplier who charges 29 riyals per CPU. However, there are some
implications:
– If the CPU division transfers 10,000 units to the Hard desk division, it will save 3 riyals per
unit in variable costs.
– If the Hard desks division also needs 20,000 special CPUs, which the CPU division can
produce at a variable cost of 20 riyals per unit. However, this will reduce the CPU division’s
capacity to produce only 70,000 standard CPUs. The Hard desks division can buy the special
CPU from an external supplier for 41 riyals per unit.
Discuss this case and give your recommendations:
1. What is the minimum transfer price that the CPU division should accept for the standard CPU?
2. What is the maximum transfer price that the Hard desk division should pay for the CPU?
3. What is the acceptable range of transfer prices that both divisions can agree on for the standard
CPU?
2
Case study (2)
course
Financial Decision Making (MB 500)
Class instructor
Dr. Hossam Sharawi
Section
Accounting & Finance
06/08/2024
JIC
Exam`s Date
College
Student Name
ID
Number of Exam Pages
2 Pages
Instructor’s Signature
Dr. Hossam Sharawi
Reviewer’s Signature
Instructions:
1- Make sure that your exam sheet is 2 papers including the cover page.
2- Write your name and student ID number in the fields above.
3- Read the exam carefully and answer all the questions.
4- A calculator is allowed.
5- You are not permitted to share calculators or any other materials during the exam .
1st: Knowledge 40% (…Marks)
Question Number
Mark
CLOs
1
4
1.1-1.2
PLOs
Q1
10
Total/K
Question Number
Total/s
Total
4
2nd: Skills 60 % (…Marks)
Mark
CLOs
6
2.1-2.2
10
PLOs
6
3rd : values …% (…Marks)
Total/v
Total
Mark
1
The First question: Answer the following case study
10 Marks
ABC Company is a computer products manufacturer with a CPU division that produces both
standard and special CPUs. The following data is given:
– Production capacity: 100,000 units
– Variable cost per unit: 16 riyals
– Fixed cost per unit: 9 riyals
– Selling price in the market: 30 riyals
The manager of the Hard desk division wants to buy 10,000 standard CPUs from the CPU division
instead of the external supplier who charges 29 riyals per CPU. However, there are some
implications:
– If the CPU division transfers 10,000 units to the Hard desk division, it will save 3 riyals per
unit in variable costs.
– If the Hard desks division also needs 20,000 special CPUs, which the CPU division can
produce at a variable cost of 20 riyals per unit. However, this will reduce the CPU division’s
capacity to produce only 70,000 standard CPUs. The Hard desks division can buy the special
CPU from an external supplier for 41 riyals per unit.
Discuss this case and give your recommendations:
1. What is the minimum transfer price that the CPU division should accept for the standard CPU?
2. What is the maximum transfer price that the Hard desk division should pay for the CPU?
3. What is the acceptable range of transfer prices that both divisions can agree on for the standard
CPU?
2
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