In each of the cases below, assume that Division X has a productthat can be sold either to outside customers or to Division Y ofthe same company for use in its production process. The managers ofthe divisions are evaluated based on their divisional profits.
Case A B Division X: Capacity in units 106,000 108,000 Number of units being sold tooutside customers 106,000 87,000 Selling price per unit tooutside customers $ 59 $ 28 Variable costs per unit $ 27 $ 13 Fixed costs per unit (based oncapacity) $ 10 $ 5 Division Y: Number of units needed forproduction 21,000 21,000 Purchase price per unit nowbeing paid to an outside supplier $ 53 $ 26
6.
value:
5.00 points
Required information
Required:
1-a. Refer to the data in case A above. Assume in this case that$2 per unit in variable selling costs can be avoided onintracompany sales.
1-b. If the managers are free to negotiate and make decisions ontheir own, will a transfer take place?
Yes No
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7.
value:
5.00 points
Required information
2-a. Refer to the data in case B above. In this case, there willbe no savings in variable selling costs on intracompany sales.Determine the transfer price of the selling division
2-b. If the managers are free to negotiate and make decisions ontheir own, will a transfer take place?
No Yes
2-c. What is the range of transfer price the managers of bothdivisions should agree?
In each of the cases below, assume that Division X has a productthat can be sold either to outside customers or to Division Y ofthe same company for use in its production process. The managers ofthe divisions are evaluated based on their divisional profits.
| Case | |||||||
| A | B | ||||||
| Division X: | |||||||
| Capacity in units | 106,000 | 108,000 | |||||
| Number of units being sold tooutside customers | 106,000 | 87,000 | |||||
| Selling price per unit tooutside customers | $ | 59 | $ | 28 | |||
| Variable costs per unit | $ | 27 | $ | 13 | |||
| Fixed costs per unit (based oncapacity) | $ | 10 | $ | 5 | |||
| Division Y: | |||||||
| Number of units needed forproduction | 21,000 | 21,000 | |||||
| Purchase price per unit nowbeing paid to an outside supplier | $ | 53 | $ | 26 | |||
6.
value:
5.00 points
Required information
Required:
1-a. Refer to the data in case A above. Assume in this case that$2 per unit in variable selling costs can be avoided onintracompany sales.
1-b. If the managers are free to negotiate and make decisions ontheir own, will a transfer take place?
| Yes | |
| No |
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References
eBook & Resources
Hint #1
Check my work
7.
value:
5.00 points
Required information
2-a. Refer to the data in case B above. In this case, there willbe no savings in variable selling costs on intracompany sales.Determine the transfer price of the selling division
2-b. If the managers are free to negotiate and make decisions ontheir own, will a transfer take place?
| No | |
| Yes |
2-c. What is the range of transfer price the managers of bothdivisions should agree?
Related questions
In each of the cases below, assume that Division X has a productthat can be sold either to outside customers or to Division Y ofthe same company for use in its production process. The managers ofthe divisions are evaluated based on their divisional profits.
| Case | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| A | B | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Division X: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Capacity in units | 103,000 | 94,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Number of units being sold tooutside customers | 103,000 | 78,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Selling price per unit tooutside customers | $ | 53 | $ | 33 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Variable costs per unit | $ | 26 | $ | 14 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fixed costs per unit (based oncapacity) | $ | 8 | $ | 4 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Division Y: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Number of units needed forproduction | 16,000 | 16,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Purchase price per unit nowbeing paid to an outside supplier | $ | 47 | $ | 28 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| In each of the cases below, assume that Division X has a productthat can be sold either to outside customers or to Division Y ofthe same company for use in its production process. The managers ofthe divisions are evaluated based on their divisional profits.
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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 | |
| Selling price to outside customers on the intermediate market | $ 20 | |
| Variable costs per unit | $ 12 | |
| Fixed costs per unit (based on capacity) | $ 9 | |
| The company has a Pump Division that could use this valve in the manufacture of one of its pumps. The Pump Division is currently purchasing 16,000 valves per year from an overseas supplier at a cost of $19 per valve. |
| Required: |
| 1. | 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?
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