Cost Allocation Assignment

University of Phoenix ACC/HC 561

How much would the transfer price be under

• Full Charges In full charges the transfer price would cover all the costs. The full costs are: Labor and Supplies=$300

Overheads=$90

Transfer Price=$390

• Variable Costs

In Variable costs, the transfer price is based on the variable costs that is the costs that change with the activity level. The variable costs are labor and supplies

Transfer-$300

• Market Price

In the market based transfer price method the price is based on what price is available in the market. Here the market price is $375

The transfer price is $375

• Negotiated Price

In a negotiated price the transfer price is based on negotiation and the minimum would be the variable cost which is $300 since the supplier would not be willing to sell below variable cost and the maximum would be $375 which is the market price since the buyer would not be willing to pay more than that

Transfer price in negotiated price would be between $300 and $375

How much profit does each hospital make under each alternative? How much do the combined hospitals make under each of the above alternatives? What would happen if Western purchased from an outside laboratory for $375

Currently the test is being sold at $505. Academic is charging $450 and Western is making a profit of $105 per test and so the price for the test is $555. The variable cost for the test is $300. As a whole the company is making 555-300=$255 per test. This would remain the same, the distribution of the profit between the hospitals would change as the transfer price changes. This is shown in the table below

Method | Transfer Price | Academic (Transfer Price - $300 the variable cost) | Western ($555 the test price less the transfer price) | Combined |

Current Method | 450 | 150 | 105 | 255 |

Full cost | 390 | 90 | 165 | 255 |

Variable cost | 300 | 0 | 255 | 255 |

Market Price | 375 | 75 | 180 | 255...