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Hello John
With regards to Dec 2011, Q2, Bath co.
Kindly explain to me ‘how in part b) They arrived at the material Cost of materials for Division A
60,000 × $265 +(20,000×$200)= $19,900
Please highlight for me also, how $265 was used
Thank You very much sirDivision A will buy 20,000 units from B, and 60,000 units externally.
For the units bought from B, the only external costs will be “other materials from external suppliers” which is $200.
For the units bought externally, they will have to pay the $65 for ‘fittings’ (which before they were buying from B) and also the $200 for “other materials from external suppliers”.Thank you for the response and sorry for this huge bother
1 am however struggling’ to connect the dots
would appreciate if you can help with a step by step calculation.
1 spent a better part of the day trying to go around this with no successBest Regards
I cannot possibly write out the entire answer here – all the workings are in the examiners answer.
Whatever A does, they have to pay 200 for ‘other materials’ externally. In addition they have to pay for the ‘fittings’ which they either buy externally or they buy from B. If they buy externally it is part of the total external material costs. If they buy from B then it is ‘inter-divisional transfer’.
Thank you sir, it is clear!
one more though, how was the material price calculated for D14Q3 on relevant costing
I need explanation on how 8.2/m2 becomes 8.2/m
Thank you!I will answer you, but in future please start a new thread when it is a question on a different topic (it is because we want everyone to be able to benefit from our answers, but for that they need to know what the topic is in the heading 🙂 )
They simply mistyped m2 as m in the answer!! It doesn’t affect the arithmetic at all, which is all correct.
Hello Sir,
In Bath Co, I did not understand how they got the internal units to Div A as 20,000 and also why is Division B only charging $65? It is because thats the maximum division A will be paying?
If so, why are we not buying 80,000 units externally? Charging 65 instead of 75 to division B will let division B lose 10 dollars
I am sorry sir I am just a bit confused in this question
Thank you in advance!
The maximum that B can produce is 200,000 units. The maximum external demand from B is 180,000 units, which leaves 20,000 available to apply to Division A.
If B were to charge 75, then A would prefer to buy externally and B would sell nothing to A. Given that it only costs B $20 to produce them, they will be happy to sell to B for anything more than $20, and $65 is the most that A will be prepared to pay.
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