BMAF3033 management accounting
Goodman Group Bhd operates two decentralized profit centres: Cherry (C) and Strawberry (S). Cherry produces three products: Rose (R), Lily (L) and Teratai (T). Strawberry produces three products: Gree (G), Mellow (M) and Vivy (V). The following additional information is available:-
· 40% of R is sold externally at an average price of RM39
· 60% of R and all of L and T are sold to Strawberry
· The variable cost per unit (RM) is: R 18, L 39, T 54
· The labour content (hours) are: R 4.5, L 4.5, T 4.5
· Production capacity is 270,000 direct labour hours.
· The minimum direct labour hour required for each product is 67,500
· The fixed overheads (RM) are: R 225,000; L 315,000; T 540,000
· The three products G, M and V use R, L and T in the following amounts. G uses 5 of R and 5 of L; M uses 3 of R, 5 of L and 2 of T; and V uses 2 of R and 8 of T.
· The selling prices (RM) are: G 840, M 885, V 1,020.
· For each product a minimum of 1,500 units must be sold each year.
· It could buy all of R, L and T produced by Cherry.
· The variable cost (RM) per unit is: G 90, M 75, V 135.
· Fixed overheads (RM) are: G 180,000; M 270,000; V 360,000.
· It has been operating below capacity due to product R being sold externally.
The policy is if a product is sold externally then the transfer price will be the average price, and for internal transfer the transfer price will be the variable cost plus minimum fixed overhead plus 10% profit on cost. The group management has ordered that sale externally be stopped.
a) Calculate the transfer prices, the production schedule and the profit center profit for Cherry.
b) For Strawberry, calculate the quantities of R, L and T to be bought from Cherry, the production schedule and the profit center profit.
c) Calculate the production schedule and the group profit for the group.