Question 1
Gooding Custom Design generated $320,000 in operating income on sales revenue of $2,500,000. The company had $3,000,000 in assets on January 1 and $3,250,000 in assets on December 31.
Required:
| a. | Calculate Gooding's margin. |
| b. | Calculate Gooding's asset turnover. |
| c. | Calculate Gooding's return on investment. |
Question 2
The Machining division makes a component part that the Assembly division needs for a new product. The Machining division's variable cost of manufacturing the component is $25 per unit. The component is also available on the open market at a price of $45 per unit. The Assembly division needs 900 units per year, and the Machining division has excess capacity of 1,000 units.
Required:
| a. | Determine the cost-based transfer price that the Machining division should charge the |
Assembly division.
| b. | Determine the market-based transfer price that the Machining division should charge |
the Assembly division.
| c. | What arguments will the Machining division's manager and the Assembly division's |
manager make in an attempt to get the price each wants?
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