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?

Recognize the factors involved in the formation and operation of a partnership.

Understand the accounting and financial implications of changes in partnership composition.

Understand the process and implications of admitting new partners into a partnership, including asset investment and premium payments.

Comprehend the methods for dividing income and losses among partners, especially in scenarios where net income is less than expected allowances.

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Definitions:

Solution

The result of solving a problem or equation, often denoting a value or set of values that satisfy the given mathematical conditions.

Inequality

An algebraic relationship indicating that one quantity is larger or smaller than another.

Inequality

A mathematical statement indicating that two expressions are not equal, often involving signs such as > (greater than), < (less than), ≥ (greater than or equal to), or ≤ (less than or equal to).

Inequality

A mathematical relationship between two expressions that are not equal, using symbols such as <, >, ≤, or ≥.