Acounting

University of the South Pacific

Faculty of Business and Economics

School of Accounting and Finance

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AF201 - Managerial Accounting

Assignment 2

Weighting: The total mark for this assignment is 50 and is worth 5% of your total assessment.

Due date: Monday 22nd October, at 2.00 PM sharp in 092-001 Lecture Hall. ALL ASSIGNMENTS HANDED IN AFTER THIS TIME WILL BE REGARDED AS LATE ASSIGNMENTS.

Instructions: 1. Your assignment MUST be word processed. Hand written assignments will NOT be accepted.

2. Ensure that your name, ID No., tutor's name and tutorial day and time are stated clearly on the cover page, which can be downloaded from AF201 moodle page.

3. A penalty of 10% will be deducted each day or part thereof that the assignment is late.

4. Plagiarized assignment will be awarded a Zero (0) mark.

Nashmen Manufacturing Corporation produces lawn mowers, snowblowers, and tillers. The company has six divisions, each set up as investment centers. Managers of the divisions are evaluated and rewarded in the basis of return on investment and EVA. Company policy dictates that internal transfers must take place whenever possible and that the transfer price will be full cost plus 10 percent. Ken Booth, vice president of operations, is reevaluating the company’s current internal transfer policy in light of a recent memo received from Dana Lemmons, manager of the Parts Division. The memo follows:

Memorandum

To: Ken Booth, Vice President of Operations

From: Dana Lemmons, Manager of Parts Division

Subject: Transfer Pricing Policy

Ken, I must register serious concern about our current transfer pricing policy of full cost plus 10 percent. First, I believe this policy creates a significant understatement of my division’s ROI. Second, it creates a disincentive for my division to decrease our costs of manufacturing.

For example, consider our production of Part 34 (small carburetors). Currently, we are...