Airflow Inc. produces ceiling fans for home and industrial use. The parts for the different styles of fans are produced and sold by theParts Division to the Assembly Division of Airflow Inc. The cost to the Parts Division is $12 per fan. The Assembly Division assemblesthe purchased parts into finished fans at a cost of $6 per unit and sells the assembled product to an outside wholesaler for $25 perunit. Due to the proprietary technology used to make the Airflow fans operate particularly quietly, the Parts Division is not allowed tosell the parts it produces to external customers. Both divisions have some idle capacity. The managers of both divisions are evaluatedbased on the profitability of their divisions.Required:1. What is the profit per unit of the two divisions if the transfer price is $15 per unit?Profit per unitParts DivisionAssembly Division2. What is the profit per unit of the two divisions if the transfer price is $12 per unit? (Do not leave any empty spaces; input a Owherever it is required.)Profit per unitParts DivisionAssembly Division 3. If the Parts Division operates inefficiently, causing the cost of the parts to rise to $13 per unit, and that cost is used as the transferprice, what is the profit of the two divisions? (Do not leave any empty spaces; input a O wherever it is required.)Profit per unitParts DivisionAssembly Division4. Take on the role of the Assembly Division manager and evaluate the answer in (3) above. Would you agree or disagree with the $13transfer price?O AgreeDisagree5. Which transfer price is best from the point of view of the company as a whole?Transfer price

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Answered: Airflow Inc. produces ceiling fans for…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Cantel Company produces cleaning compounds for both commercial and household customers. Some of these products are produced as part of a joint manufacturing process. For example, GR37, a coarse cleaning powder meant for commercial sale, costs $1.80 a pound to make and sells for $2.00 per pound. A portion of the annual production of GR37 is retained for further processing in a separate department where it is combined with several other ingredients to form SilPol, which is sold as a silver polish, at $5.00 per unit. The additional processing requires 1/5 pound of GR37 per unit; additional processing costs amount to $3.70 per unit of SilPol produced. Variable selling costs for SilPol average $0.20 per unit. If production of SilPol were discontinued, $4,900 of costs in the processing department would be avoided. Cantel has, at this point, unlimited demand for, but limited capacity to produce, product GR37. 2. Assume that the cost data reported for GR37 are obtained at a level of output…
Cantel Company produces cleaning compounds for both commercial and household customers. Some of these products are produced as part of a joint manufacturing process. For example, GR37, a coarse cleaning powder meant for commercial sale, costs $2.30 a pound to make and sells for $2.40 per pound. A portion of the annual production of GR37 is retained for further processing in a separate department where it is combined with several other ingredients to form SilPol, which is sold as a silver polish, at $6.00 per unit. The additional processing requires 1/4 pound of GR37 per unit; additional processing costs amount to $4.20 per unit of SilPol produced. Variable selling costs for SilPol average $0.60 per unit. If production of SilPol were discontinued, $7,200 of costs in the processing department would be avoided. Cantel has, at this point, unlimited demand for, but limited capacity to produce, product GR37. 1. Calculate the minimum number of units of SilPol that would have to be sold in…
EyeGuard Equipment Incorporated (EEI) manufactures protective eyewear for use in commercial and home applications. The product is also used by hunters, home woodworking hobbyists, and in other applications. The firm has two main product lines-the highest-quality product is called Safe-T, and a low-cost, value version is called Safe- V. Information on the factory conversion costs for EEl is as follows: Factory Costs $ 850,000 150,000 550,000 $ 1,550,000 Salaries Supplies Factory expense Total EEl uses ABC to determine the unit costs of its products. The firm uses resource consumption cost drivers based on rough estimates of the amount that each activity consumes, as shown below. EEI has four activities: job setup, assembly, inspecting and finishing, and packaging. Inspecting and Setup Assembly Finishing Packaging Total Salaries 15% 55% 20% 10% 100% Supplies Factory expense 20 60 20 100 80 20 100 The activity cost drivers for the two products are summarized below. Activities Activity…
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Carreker, Inc., has a number of divisions, including the Alamosa Division, producer of surgical blades, and the Tavaris Division, a manufacturer of medical instruments. Alamosa Division produces a 2.6 cm steel blade that can be used by Tavaris Division in theproduction of scalpels. The market price of the blade is $21. Cost information for the blade is: Variable product cost $ 9.70Fixed cost 5.50Total product cost $15.20 Tavaris needs 15,000 units of the 2.6 cm blade per year. Alamosa Division is at full capacity(90,000 units of the blade).Required:1. If Carreker, Inc., has a transfer pricing policy that requires transfer at market price, whatwould the transfer price be? Do you suppose that Alamosa and Tavaris divisions wouldchoose to transfer at that price? 2. Now suppose that Carreker, Inc., allows negotiated transfer pricing and that Alamosa Divi-sion can avoid $1.75 of selling and distribution expense by selling to Tavaris Division. Which division sets the minimum transfer price,…
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Zytel Corporation produces cleaning compounds and solutions for industrial and household use. While most of its products are processed independently, a few are related. Grit 337, a coarse cleaning powderwith many industrial uses, costs $1.60 a pound to make and sells for $2.00 a pound. A small portion of the annual production of this product is retained for further processing in the Mixing Department, where it is combined with several other ingredients to form a paste, which is marketed as a silver polish selling for $4.00 per jar. This further processing requires ¼ pound of Grit 337 per jar. Costs of other ingredients, labor, and variable overhead associated with this further processing amount to $2.50 per jar. Variableselling costs are $.30 per jar. If the decision were made to cease production of the silver polish, $5,600 of Mixing Department fixed costs could be avoided. Zytel has limited production capacity for Grit 337, but unlimited demand for the cleaning powder. Required:…
Easy Fit Ltd. manufactures heating, ventilation, and air conditioning (HVAC) equipment. The Manufacturing Division creates parts; and, the Assembly Division builds and sells the equipment. The Manufacturing Division "sells" furnace parts packages to the Assembly Division. The market price for the Assembly Division to purchase a mini furnace is $3,500. The fixed costs for the Manufacturing Division are assumed to be the same over the range of 2,000-5,000 units. The fixed costs for the Assembly Division are assumed to be $40.00 per unit at 5,000 units. Manufacturing costs per furnace are: $1,300.00 $350.00 $100.00 Direct materials Direct labour Variable overhead Division fixed costs $90.00 Assembly's costs per completed furnace are: $25.00 $150.00 $50.00 $40.00 Direct materials Direct labour Variable overhead Division fixed costs If the Assembly Division sells 1,000 furnaces at a price of $3,500 per unit to customers, what is the company's operating income? $1,660,000 $3,250,000 $175,000…

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