Pubworld Is a Textbook Publishing Company That Has Contracts with Several

question 51

Short Answer

Pubworld is a textbook publishing company that has contracts with several different authors. It also operates a printing operation called Printpro. Both companies operate as separate profit centers. Printpro prints textbooks written by Pubworld authors, as well as books written by non-Pubworld authors. The printing operation bills out at $0.06 per page and a typical textbook requires 600 pages of print. A developmental editor from Pubworld approached the printing operation manager offering to pay $0.045 per page for 5,000 copies of a 600-page textbook. Outside printers are currently charging $0.05 per page. Printpro's variable cost per page is $0.04.
Instructions
1. Calculate the appropriate transfer price and indicate whether the printing should be done internally by Printpro under each of the following situations:
a. Printpro has available capacity.
b. Printpro has no available capacity and would have to cancel an outside customer's job to accept the editor's offer.
2. Calculate the change in contribution margin for each company, if top management forces Printpro to accept the $0.045 transfer price when it has no available capacity.

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Definitions:

Proportionate Share

An ownership interest reflecting a proportional part of the total shares, often related to profits, losses, or voting power.

Entitlement

The right to benefit from assets or services, such as dividends for shareholders or leave benefits for employees.

Jointly Controlled Entity

An entity that is operated and controlled through a contractual arrangement between two or more parties who have joint control.

AASB 11

An accounting standard issued by the Australian Accounting Standards Board that outlines the reporting requirements for parties involved in joint arrangements.