Question

Ajax consolidated has several divisions; however, only two of its divisions transfer products to other divisions. The mining division refines toldine, which it transfers to the metals division where toldine is processed into an alloy and is sold to customers for $150 per unit. Ajax currently requires the mining division to transfer its total annual output of 400,000 units of toldine to the metals division at total (actual) manufacturing cost plus 10%. Unlimited quantities of toldine can be purchased and sold on the open market at $90 per unit. The mining division could sell all the toldine it produces at $90 per unit on the open market, but it would incur a variable selling cost of $5 per unit. To achieve a bonus, divisional managers need to exceed a ROI (return on investment defined as assets) of 10%. The mining division has assets of $75 million and the metals division has assets of $70 million. What is the manufacturing cost per unit of toldine transferred from the mining division to the metals division?

1) $90
2) $99
3) $100
4) $110

Answer 1

The transfer cost for holding from the mining to the metals division of Ajax Consolidated can be calculated based on the given market price of $90 and the actual cost plus 10% markup condition. However, the exact figure doesn't match any of the provided options, suggesting an error in the question or options.

Step-by-step explanation:

The student is asking about the calculation of the transfer price within a company that has different divisions dealing with the production of a single product. The scenario provided is related to a company named Ajax Consolidated, which has a mining division transferring a product to its metals division at a markup. The question specifically requests the calculation of the manufacturing cost per unit of holding before the 10% markup.

Given the information, we know that the market rate for holding is $90 per unit. With the transfer at actual cost plus 10%, and considering the market price acts as a ceiling since the mining division can sell at this price on the open market, the calculation would be cost + 10% of cost = $90. Let's denote the cost as C. Then, we can write the equation as C + 0.10C = $90. Solving for C gives us C = $81.82. However, this specific calculation is not one of the options provided. Since $81.82 is not offered as a possible answer, and no other information is provided to adjust the figure, there must be an error in the premise of the question or the provided options.