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Category > Accounting Posted 11 Aug 2017 My Price 7.00

production process.

In each of the cases below, assume that Division X has a product that can be sold either to outside customers or to Division Y of the same company for use in its production process. The managers of the divisions are evaluated based on their divisional profits.

 

 

Case
  A B
Division X:    
Capacity in units 100,000 100,000
Number of units being sold to outside customers 100,000 80,000
Selling price per unit to outside customers $50 $35
Variable costs per unit $30 $20
Fixed costs per unit (based on capacity) $8 $6
Division Y:    
Number of units needed for production 20,000 20,000
Purchase price per unit now being paid to an
outside supplier		 $47 $34

 

Required:

 

1a.

Refer to the data in case A above. Assume that $2 per unit in variable selling costs can be avoided on intracompany sales. (Omit the "$" sign in your response.)

 

Transfer price $

 

1b.

If the managers are free to negotiate and make decisions on their own, will a transfer take place?
   
 
  Yes
  No

 

2a.

Refer to the data in case B above. In this case, there will be no savings in variable selling costs on intracompany sales. Determine the transfer price of the selling division. (Omit the "$" sign in your response.)

 

Transfer price $

 

2b. If the managers are free to negotiate and make decisions on their own, will a transfer take place?
   
 
  Yes
  No

 

2c.

What is the range of transfer price the managers of both divisions should agree? (Omit the "$" sign in your response.)


The transfer price can be a lowest of $ and a highest of $ .

Answers

Maurice Tutor
(5)
Status NEW Posted 11 Aug 2017 05:08 PM My Price 7.00

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