Comment upon the results with the 2 different transfer

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Section A

Compulsory Question

Betsy Ltd produces garden furniture in its two divisions A and B.

Division A produces the garden chairs and then transfers them to Division B, who varnish them and sell them to national garden centres for £60 per chair.

The budgeted data for the month is:

                                Division A  Division B

Units transferred/sold    25,000  25,000

Annual fixed costs       £65,000  £35,000

Material costs per unit  £7  £2

Labour costs per unit     £6  £4

Other variable costs per unit   £2  £2


a. Prepare profit statements for each of the divisions and also for the company as a whole, if the transfer price from Division A to B is: (i) £20 per unit

(ii) £25 per unit

b. Comment upon the results with the 2 different transfer prices and on the motivational impact on the two divisional managers.

c. Discuss the problems that arise specifically when determining transfer prices where divisions are located in different countries.

Question 2

a. A large organisation can be structured either functionally or divisionally. Explain the two types of structuring and identify the advantages and disadvantages of deciding to structure divisionally.

b. Identify and explain the two main types of market research a business could use and why a company would wish to do research

Question 3

Harper Ltd also produce a further rowing boat, the Rower, which has been in production for a number of years, and to date 352 units of the Rower have been produced. The budget for the next quarter is showing the production of 50 units of the Rower. If the 1st ever unit took 100 hours and an 80% learning curve applies,


a. Calculate.

(i) the total labours hours needed for the production of the 50 units of the Rower (ii) the average labour time per unit

(iii) explain where this information may be used by Harper Ltd

Note: the learning co-efficient of 80% is -0.322

b. Explain Learning Curve theory and identify and explain the areas where the theory will affect Harper Ltd.

Note the learning co-efficient of an 80% learning curve is -0.322

Question 4

A company needs to control its operations in order to achieve the profit it has budgeted for. One possibility could be standard costing.

a. Identify and explain the 4 types of standard that a company can choose.

b. Explain the controllability principle and exception by reporting.

c. Identify and explain the 4 ways a company can choose to decide whether to investigate a variance.

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