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Seven years ago, Jasmin Prestoza formed the Jazz Corporation and began producing computer equipment for

home use. Because of the highly technical and competitive nature of the industry, Jazz established a research and development division that is responsible for continuous evaluation and updating of critical electronic parts used in all the corporation's products. The staff of the R&D Division has been very successful, contributing to the corporation's number one ranking in the industry in the Philippines

Two years ago, the R&D Division took on the added responsibility of producing all microchip circuit boards for Jazz computer equipment. One of its specialties is a graphics dissemination board (GDB). The GDB is a major factor in the quality of the Jazz computers. Demand for the GDB has increased significantly in the last year, and the R&D Division has had to increase its production and assembly labor force. Three outside customers want to purchase the GDB for their computer products. To date, the R&D Division has been producing the GDBs only for Internal use The controller of the R&D Division wants to create a transfer price for GDBs that will be used for all intracompany transfers. The following information has been

projected for the next six months:

Seven years ago, Jasmin Prestoza formed the Jazz Corporation and began producing computer equipment for

home use. Because of the highly technical and competitive nature of the industry, Jazz established a research and development division that is responsible for continuous evaluation and updating of critical electronic parts used in all the corporation's products. The staff of the R&D Division has been very successful, contributing to the corporation's number one ranking in the industry in the Philippines

Two years ago, the R&D Division took on the added responsibility of producing all microchip circuit boards for Jazz computer equipment. One of its specialties is a graphics dissemination board (GDB). The GDB is a major factor in the quality of the Jazz computers. Demand for the GDB has increased significantly in the last year, and the R&D Division has had to increase its production and assembly labor force. Three outside customers want to purchase the GDB for their computer products. To date, the R&D Division has been producing the GDBs only for Internal use , The controller of the R&D Division wants to create a transfer price for GDBs that will be used for all intracompany transfers. The following information has been

projected for the next six months:

Costs: Direct materials P771,800 Direct labor 796,200 Overhead costs 410,300 Costs allocated from corporate office 988,700 A profit factor of at least 20 percent must be added to the cost (including costs allocated from the corporate office) of the GDB for internal transfer purposes. The outside customers are willing to pay P45 for the GDB. Demand over the next six months is estimated at 78,000 GDBs for internal use and 22,000 for external customers. The computed cost-plus price is P35.60. What should be the transfer price used by the R&D Division? What factors influenced your decision? (10 points) Costs: Direct materials P771,800 Direct labor 796,200 Overhead costs 410,300 Costs allocated from corporate office 988,700 A profit factor of at least 20 percent must be added to the cost (including costs allocated from the corporate office) of the GDB for internal transfer purposes. The outside customers are willing to pay P45 for the GDB. Demand over the next six months is estimated at 78,000 GDBs for internal use and 22,000 for external customers. The computed cost-plus price is P35.60. What should be the transfer price used by the R&D Division? What factors influenced your decision? (10 points)

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