DesMoines Valley Company Has Two Divisions, Computer Services and Consultancy

question 6

Essay

DesMoines Valley Company has two divisions, Computer Services and Consultancy Services. In addition to their external customers, each division performs work for the other division. The external fees earned by each division in 20X5 were $200,000 for Computer Services and $350,000 for Consultancy Services. Computer Services worked 3,000 hours for Consultancy Services, who, in turn, worked 1,200 hours for Computer Services. The total costs of external services performed by Computer Services were $110,000 and $240,000 by Consultancy Services.
Required:
a.Determine the operating income for each division and for the company as a whole if the transfer price from Computer Services to Consultancy Services is $15 per hour and the transfer price from Consultancy Services to Computer Services is $12.50 per hour.
b.Determine the operating income for each division and for the company as a whole if the transfer price between divisions is $17 per hour.
c.What are the operating income results for each division and for the company as a whole if the two divisions net the hours worked for each other and charge $12.50 per hour for the one with the excess? Which division manager prefers this arrangement?

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Definitions:

Quasi Contract

A legal concept where a court imposes a contractual obligation on a party who has not expressly consented to it, to prevent unjust enrichment.

Illusory Promise

An agreement that lacks a firm commitment or terms, making it unenforceable by law.

Accord and Satisfaction

A legal settlement where a debtor offers payment or performance different from what was originally agreed, and the creditor accepts it as full settlement of the debt.

UCC

A complete collection of legal regulations that administer all business dealings across the United States, known as the Uniform Commercial Code.