Flinders Street Consultancy Has Two Divisions: Computer Services and Management

question 133

Essay

Flinders Street Consultancy has two divisions: Computer Services and Management Advisory Services.In addition to their external customers,each division performs work for the other division.The external fees earned by each division in 2017 were $200 000 for Computer Services and $350 000 for Management Advisory Services.Computer Services worked 3000 hours for Management Advisory Services,who in turn,worked 1200 hours for Computer Services.The total costs of external services performed by Computer Services were $110 000 and $240 000 by Management Advisory Services.
Required:
a.Determine the operating profit for each division and for the company as a whole if the transfer price from Computer Services to Management Advisory Services is $15 per hour and the transfer price from Management Advisory Services to Computer Services is $12.50 per hour.
b.Determine the operating profit for each division and for the company as a whole if the transfer price between divisions is $15 per hour.
c.What are the operating profit 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:

Beta

A measure of a stock's volatility in relation to the overall market; it indicates the tendency of a stock's returns to respond to swings in the market.

Portfolio

A group of investment assets held by either a person or a corporate entity.

Stock Y

A placeholder name typically used to represent a generic or hypothetical stock or equity investment in examples or discussions.

Beta

A measure of a stock's volatility in relation to the overall market; indicating how much a stock’s price might swing.