MGAB03H3 Lecture Notes - Lecture 13: Icq, Variable Cost, Contribution Margin

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peachturtle345

20 Jan 2016

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If the transfer price is more than , the manager would be better off buying the component from an external supplier. The company should be indifferent between the two possibilities: if the part division is not operating at full capacity, it would be beneficial for the company to transfer at full cost. 13. 28 transfer prices wood inc: for the company as a whole: Contribution margin from selling 10,000 logs to external customers: [ (. 50 + . 50)] 10,000 = ,000. Contribution margin from selling 10,000 units of pole-s: [. 00 (. 50 + . 50) (. 00 + . 50 + . 50)] 10,000 = ,000. The contribution margin is ,000 higher if logs are transferred from the harvesting. Wood inc. would be better off transferring the logs: the transfer of logs at . 50 will have the effect of transferring profits from the. The maximum transfer price is equal to the market price of per log.

Related Questions

The Texas division of an aeronautics company produces a digitalthermometer. The thermometer can be sold on the open market for$180 each, or it can be used by the Kansas division (anotherdivision of the aeronautics company) which produces a temperaturecontrol gauge. The Kansas division can buy the digital thermometerfrom an external supplier for $140.

The Texas division incurs $75 of variable costs and $100 offixed costs in producing the thermometers.

At present, the Texas division is operating at 70% capacity andcan provide the Kansas division with all the thermometers itneeds.

A. Given the above conditions, explainwhy the Kansas division should (or should not) buy the requiredthermometers from the Texas division.

B.Based upon your answer in part (A),what would be the transfer price for the thermometer? BE SURE TOINCLUDE A HIGH AND LOW PRICE.

C. If the Texas division wereoperating at 100% capacity, explain why your answer to part (A)would (or would not) change.

D.Based upon your answer in part (C),what would be the transfer price for the thermometer? BE SURE TOINCLUDE A HIGH AND LOW PRICE.

viridiancicada430

Minnesota Co. has two divisions: the electronics division and the sub-assembly division.
The electronics division manufactures circuit boards for electronic components. One of the parts it manufactures is circuit board CB136, which has a selling price of $40 per unit on the market. The part has a variable unit cost of $26 and a fixed cost of $8 per unit based on full use of capacity. Minnesota currently produces and sells 425,000 units of its 450,000-unit capacity to customers outside of the company.

The sub-assembly division manufactures electronic components used in automotive parts. One of its components, the SR20, includes a circuit board that is similar to the CB136. Currently, the division buys the circuit board from an outside supplier at a cost of $35 per unit. In the manufacture of the SR20, the sub-assembly division adds an additional $18 of variable costs per unit, applies $7 of fixed costs per unit and sells the completed component for $75. If a transfer took place between divisions, the sub-assembly division could use 100,000 units of part CB136.
Given that each division manager has decision autonomy, what is the minimum transfer price that the electronics division would be willing to accept for CB136?

a) $26.00
b) $34.00
c) $36.50
d) $40.00

sangriatrout1

The Halifax division of Canadian Controls (CC) produces adigital thermometer. The thermometer can be sold on the open marketfor $75 each or it can be used by the Ottawa division in theproduction of a temperature control gauge. The Halifax division iscurrently operating at 70% of its capacity of 2,000 digitalthermometers per month. Following are average costs per unit atthis level of capacity:

Average Cost

Directmaterials $20

Variablesupplies 10

Fixedcosts 33

Total average cost perthermometer $63

If a digital thermometer is sold on the open market, theshipping cost is $5, paid by Halifax Division. The cost of shippinga digital thermometer internally from Halifax to Ottawa Division is$1, also paid by the Halifax Division.

a) What is the best transfer price â or range of transfer prices- for Canadian Controls overall if a digital thermometer istransferred to Ottawa and the Halifax division is operating at 70%of capacity? Will transfers occur? What is the maximum number ofunits that could be transferred at this range of prices?

b) What is the best transfer price - or range of transfer prices- for Canadian Controls overall if a digital thermometer istransferred to Ottawa, but the Halifax division is operating atfull capacity and the digital thermometer could have been sold onthe open market? Will transfers occur?

c) Suppose the Ottawa division can purchase a substitute for thedigital thermometer from an outside supplier for $70 (includingshipping costs). What transfer price, if any, would motivate themanagers to transfer internally i) per part a? ii) perpart b? above.

orchidfrog792

MGAB03H3 Lecture Notes - Lecture 13: Icq, Variable Cost, Contribution Margin

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