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SEMO Inc. has a division located in Spain and another in theU.S. The Spanish division produces a part needed for the productmade by the U.S. division. There is substantial excess capacity inthe Spanish division. The tax rate of the Spanish division is 35%and U.S. division tax rate is 30%. The part sells externally for$75 and the Spanish division's manufacturing costs are:

Direct material $32

Direct labor $12

Variable overhead $6

Fixed overhead $19

Required:

1) What would be the lowest acceptable transfer price for theSpanish Division?

2) What would be the highest acceptable transfer price for theU.S. Division?

3) What would be the transfer price that would be the best forSEMO Inc. and why?

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Beverley Smith
Beverley SmithLv2
28 Sep 2019

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Collyer Products Inc. has a Valve Division that manufactures and sells a standard valve as follows:
Capacity in units 160,000
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Required:
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Assume that the Valve Division has ample idle capacity to handle all of the Pump Division's needs. What is the acceptable range, if any, for the transfer price between the two divisions?
2.

Assume that the Valve Division is selling all that it can produce to outside customers on the intermediate market. What is the acceptable range, if any, for the transfer price between the two divisions?

3.

Assume again that the Valve Division is selling all that it can produce to outside customers on the intermediate market. Also assume that $2 in variable expenses can be avoided on transfers within the company, due to reduced selling costs. What is the acceptable range, if any, for the transfer price between the two divisions?

4.

Assume the Pump Division needs 40,000 special high-pressure valves per year. The Valve Division's variable costs to manufacture and ship the special valve would be $10 per unit. To produce these special valves, the Valve Division would have to reduce its production and sales of regular valves from 160,000 units per year to 80,000 units per year. As far as the Valve Division is concerned, what is the lowest acceptable transfer price? (Round your answer to 2 decimal places.)

1.Home Products, Inc., is planning the introduction of a new food dryer. To compete effectively, the dryer would have to be priced at no more than $40 per unit. An investment of $600,000 would have to be made in order to produce and sell the new dryer. The company requires a return on investment of at least 25% on new products. Assuming that the company expects to produce and sell 30,000 dryers per year, the target cost per dryer would be closest to:

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Elise Carpets Inc. has just acquired a new backing division that produces a rubber backing, which it

sells for $3.30 per square yard. Sales are about 1,200,000 square yards per year. Since the Backing

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