Transfer Pricing Wiring used by the Appliance Division of Kaufman Manufacturing is currently purchased from outside suppliers at a cost of $25 per unit. However, the same materials are available from the Electronic Division. The Electronic Division has unused capacity and can produce the materials needed by the Appliance Division at a variable cost of $20 per unit. Assume that a transfer price of $22 has been established and that 150,000 units of materials are transferred, with no reduction in the Electronic Division’s current sales. a. How much would Kaufman Manufacturing’s total operating income increase?$ b. How much would the Appliance Division’s operating income increase?$ c. How much would the Electronic Division’s operating income increase?$ d. If the negotiated price approach is used, what would be the range of acceptable transfer prices and why?

Transfer Pricing Wiring used by the Appliance Division of Kaufman Manufacturing is currently purchased from outside suppliers at a cost of $25 per unit. However, the same materials are available from the Electronic Division. The Electronic Division has unused capacity and can produce the materials needed by the Appliance Division at a variable cost of $20 per unit. Assume that a transfer price of $22 has been established and that 150,000 units of materials are transferred, with no reduction in the Electronic Division’s current sales. a. How much would Kaufman Manufacturing’s total operating income increase?$ b. How much would the Appliance Division’s operating income increase?$ c. How much would the Electronic Division’s operating income increase?$ d. If the negotiated price approach is used, what would be the range of acceptable transfer prices and why?

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter10: Evaluating Decentralized Operations

Section: Chapter Questions

Problem 17E: Materials used by the Instrument Division of Ziegler Inc. are currently purchased from outside...

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