The EKTA’s main competitor does not manufacture their bicycle frames. They purchase the frames from outside suppliers for their Assembly Division. Do you believe that this difference in operations gives either EKTA or their competitor a pricing advantage over the other?
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The EKTA Company, founded in 1992, is a manufacturer and exporter of
high-end bicycles. Its assembly division buys bicycle frames from the frame
division and assembles the bicycles.
The frame division, which is operating at capacity, incurs an incremental
The EKTA’s main competitor does not manufacture their bicycle
frames. They purchase the frames from outside suppliers for their
Assembly Division. Do you believe that this difference in operations
gives either EKTA or their competitor a pricing advantage over the
other?
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- The Slate Company manufactures and sells television sets. Its assembly division (AD) buys television screens from the screen division (SD) and assembles the TV sets. The SD, which is operating at capacity, incurs an incremental manufacturing cost of $65 per screen. The SD can sell all its output to the outside market at a price of $100 per screen, after incurring a variable marketing and distribution cost of $8 per screen. If the AD purchases screens from outside suppliers at a price of $100 per screen, it will incur a variable purchasing cost of $7 per screen. Slate’s division managers can act autonomously to maximize their own division’s operating income. Q. What is the minimum transfer price at which the SD manager would be willing to sell screens to the AD?The Slate Company manufactures and sells television sets. Its assembly division (AD) buys television screens from the screen division (SD) and assembles the TV sets. The SD, which is operating at capacity, incurs an incremental manufacturing cost of $65 per screen. The SD can sell all its output to the outside market at a price of $100 per screen, after incurring a variable marketing and distribution cost of $8 per screen. If the AD purchases screens from outside suppliers at a price of $100 per screen, it will incur a variable purchasing cost of $7 per screen. Slate’s division managers can act autonomously to maximize their own division’s operating income. Q. Now suppose that the SD can sell only 70% of its output capacity of 20,000 screens per month on the open market. Capacity cannot be reduced in the short run. The AD can assemble and sell more than 20,000 TV sets per month. a. From the point of view of Slate’s management, how much of the SD output should be transferred to the AD?The Slate Company manufactures and sells television sets. Its assembly division (AD) buys television screens from the screen division (SD) and assembles the TV sets. The SD, which is operating at capacity, incurs an incremental manufacturing cost of $65 per screen. The SD can sell all its output to the outside market at a price of $100 per screen, after incurring a variable marketing and distribution cost of $8 per screen. If the AD purchases screens from outside suppliers at a price of $100 per screen, it will incur a variable purchasing cost of $7 per screen. Slate’s division managers can act autonomously to maximize their own division’s operating income. Q. What is the maximum transfer price at which the AD manager would be willing to purchase screens from the SD?
- The Slate Company manufactures and sells television sets. Its assembly division (AD) buys television screens from the screen division (SD) and assembles the TV sets. The SD, which is operating at capacity, incurs an incremental manufacturing cost of $65 per screen. The SD can sell all its output to the outside market at a price of $100 per screen, after incurring a variable marketing and distribution cost of $8 per screen. If the AD purchases screens from outside suppliers at a price of $100 per screen, it will incur a variable purchasing cost of $7 per screen. Slate’s division managers can act autonomously to maximize their own division’s operating income. Q. Now suppose that the SD can sell only 70% of its output capacity of 20,000 screens per month on the open market. Capacity cannot be reduced in the short run. The AD can assemble and sell more than 20,000 TV sets per month. a. What is the minimum transfer price at which the SD manager would be willing to sell screens to the AD?The Slate Company manufactures and sells television sets. Its assembly division (AD) buys television screens from the screen division (SD) and assembles the TV sets. The SD, which is operating at capacity, incurs an incremental manufacturing cost of $65 per screen. The SD can sell all its output to the outside market at a price of $100 per screen, after incurring a variable marketing and distribution cost of $8 per screen. If the AD purchases screens from outside suppliers at a price of $100 per screen, it will incur a variable purchasing cost of $7 per screen. Slate’s division managers can act autonomously to maximize their own division’s operating income. Q. Now suppose that the SD can sell only 70% of its output capacity of 20,000 screens per month on the open market. Capacity cannot be reduced in the short run. The AD can assemble and sell more than 20,000 TV sets per month. a. If Slate mandates the SD and AD managers to “split the difference” on the minimum and maximum transfer…Sony manufactures and sells television sets. Its assembly division (AD) buys television screens from the screen division (SD) and assembles the TV sets. The SD, which is operating at capacity, incurs an incremental manufacturing cost of $60 per screen. The SD can sell all its output to the outside market at a price of $110 per screen, after incurring a variable marketing and distribution cost of $10 per screen. If the AD purchases screens from outside suppliers at a price of $110 per screen, it will incur a variable purchasing cost of $8 per screen. Sony’s division managers can act autonomously to maximize their own division’s operating income. Required: What is the minimum transfer price at which the SD manager would be willing to sell screens to the AD? What is the maximum transfer price at which the AD manager would be willing to purchase screens from the SD? Now suppose that the SD can sell only 80% of its output capacity of 10,000 screens per month on the open market.…
- The Windshield division of Fast Car Co. makes windshields for use in Fast Car’s Assembly division. The Windshield division incurs variable costs of $200 per windshield and has capacity to make 500,000 windshields per year. The market price is $450 per windshield. The Windshield division incurs total fixed costs of $3,000,000 per year. If the Windshield division has excess capacity, what is the range of possible transfer prices that could be used on transfers between the Windshield and Assembly divisions?Holiday Corp. has two divisions, Quail and Marlin. Quail produces a widget that Marlin could use in its production. Quail's variable costs are $4.10 per widget while the full cost is $7.10. Widgets sell on the open market for $12.20 each. If Quail has excess capacity, what would be the cost savings if the transfer were made and Marlin currently is purchasing 105,000 units on the open market? Multiple Choice $0 $745,500 $850,500 $1,281,000Avery Company has two divisions, Polk and Bishop. Polk produces an item that Bishop could use in its production. Bishop currently is purchasing 26,000 units from an outside supplier for $16 per unit. Polk is currently operating at less than its fll capacity of 580,000 units and has variable costs of $8 per unit. The full cost to manufacture the unit is $11. Polk currently sells 460,000 units at a selling price of $19 per unit. a. What will be the effect on Avery Company's operating profit if the transfer is made internally? b. What is the minimum transfer price from Polk's perspective? Minimum Transfer Price
- Benson Bicycle Manufacturing Company currently produces the handlebars used in manufacturing its bicycles, which are high-quality racing bikes with limited sales. Benson produces and sells only 7,400 bikes each year. Due to the low volume of activity, Benson is unable to obtain the economies of scale that larger producers achieve. For example, Benson could buy the handlebars for $29 each; they cost $32 each to make. The following is a detailed breakdown of current production costs. Item Unit-level costs Unit Cost Total Materials Labor Overhead $ 13 9 $ 96,200 66,600 Allocated facility-level costs Total 2 8 14,800 59,200 $ 32 $ 236,800 After seeing these figures, Benson's president remarked that it would be foolish for the company to continue to produce the handlebars at $32 each when it can buy them for $29 each. Required Calculate the total relevant cost. Do you agree with the president's conclusion? Per Unit Total Total relevant cost Do you agree with the president's conclusion? No IJordan Bicycle Manufacturing Company currently produces the handlebars used in manufacturing its bicycles, which are high-quality racing bikes with limited sales. Jordan produces and sells only 6,700 bikes each year. Due to the low volume of activity, Jordan is unable to obtain the economies of scale that larger producers achieve. For example, Jordan could buy the handlebars for $40 each; they cost $43 each to make. The following is a detailed breakdown of current production costs. Unit Total Item Cost Unit-level costs $ 113,900 60,300 13,400 $17 Materials Labor 9 Overhead 2 Allocated facility-level 15 100,500 Costs Total $43 $288,100 After seeing these figures, Jordan's president remarked that it would be foolish for the company to continue to produce the handlebars at $43 each when it can buy them for $40 each Required: a. Calculate the total relevant cost Per Unit Total Total relevant cost b.Do you agree with the president's conclusion? Yes O NoSteele Bicycle Manufacturing Company currently produces the handlebars used in manufacturing its bicycles, which are high-quality racingbikes with limited sales. Steele produces and sells only 10,000 bikes each year. Due to the low volume of activity, Steele is unable to obtainthe economies of scale that larger producers achieve. For example, Steele could buy the handlebars for $31 each; they cost $34 each tomake. The following is a detailed breakdown of current production costs. Item Unit Cost Total Unit Level Costs Materials $16 160,000 Labor 12 120,000 Overhead 2 20,000 Allocated Facility Level Cost 4 40,000 Total $34 340,000 After seeing these figures, Steele’s president remarked that it would be foolish for the company to continue to produce the handlebars at $34each when it can buy them for $31 each.RequiredCalculate the total relevant cost. Do you agree with the president’s conclusion? Per Unit Total Total Relevant Cost