Compute lowest and highest acceptable transfer price, range of acceptable transfer prices, and should company transfer carried out or reject if company sells 20,000 speakers. Introduction: Transfer prices means the price charged on the product or service provided by on department of the company to another department of the company. Divisions are evaluated on the profit basis, or residual income price must be fixed for the transfer. Prices charged in these situations are referred as transfer prices.

Question

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Answer 1

Question

Chapter 11A, Problem 11A.1E

1.

To determine

Compute lowest and highest acceptable transfer price, range of acceptable transfer prices, and should company transfer carried out or reject if company sells 20,000 speakers.

Introduction: Transfer prices means the price charged on the product or service provided by on department of the company to another department of the company. Divisions are evaluated on the profit basis, or residual income price must be fixed for the transfer. Prices charged in these situations are referred as transfer prices.

1.

Expert Solution

Answer to Problem 11A.1E

Lowest acceptable transfer price is $42 and highest acceptable transfer price is $57.

Explanation of Solution

Transfer price for lowest acceptable price.

Transfer price≥ Variable cost per unit+Total contribution margin on lost salesNumber of units transferred Transfer price≥ $42+$0$5,000Transfer price≥ $42

Transfer price for highest acceptable price:

If company can buy the speakers from outside supplier for $57 then the transfer price for highest acceptable price will be $57. So it is acceptable for the company to pay the price that is the market price.

Transfer price≤ Cost of buying from outside supplier= $57

By combining the requirements of selling division and buying division the acceptable transfer price will be $42 if 5,000 speakers are sold. Managers understand their own businesses so they will be ready to accept this transfer price.
If seen from the standpoint of the company the transfer should take place. By combining the requirements of selling division and buying division the acceptable transfer price will be $42 if 5,000 speakers are sold. Company sold speakers for $42 than selling them at $57 that is the market price.

2.

To determine

Compute lowest and highest acceptable transfer price, range of acceptable transfer prices, and should company transfer carried out or reject if company sells all speakers.

Introduction: Transfer prices means the price charged on the product or service provided by on department of the company to another department of the company. Divisions are evaluated on the profit basis, or residual income price must be fixed for the transfer. Prices charged in these situations are referred as transfer prices.

2.

Expert Solution

Answer to Problem 11A.1E

Lowest acceptable transfer price is $60 and highest acceptable transfer price is $57.

Explanation of Solution

Transfer price for lowest acceptable price.

Transfer price≥ Variable cost per unit+Total contribution margin on lost salesNumber of units transferred Transfer price≥ $42+( $60−$42)×$5,000$5,000Transfer price≥ $60

Transfer price for highest acceptable price:

Company will not be ready to pay more than $57 per speaker as it will be costly for the company for buy it.

By combining the requirements of selling division and buying division in the acceptable transfer price, selling division should have $60 and buying division should not pay more than $57. The agreement made that transfer the speakers is not good to carry out.
The standpoint of the company, company should not carry on the transfer. By combining the requirements of selling division and buying division in the acceptable transfer price, selling division should have $60 and buying division should not pay more than $57. Here company saves $3 by giving up revenues of $60 and saving the $57.

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Students have asked these similar questions

Transfer Pricing Basics Sako Company’s Audio Division produces a speaker that is used by manufacturers of various audio products. Sales and cost data on the speaker follow: Sako Company has a Hi-Fi Division that could use this speaker in one of its products. The Hi-Fi Division will need 5,000 speakers per year. It has received a quote of $57 per speaker from another manufacturer. Sako Company evaluates division managers on the basis of divisional profits. Required: 1. Assume the Audio Division is now selling only 20,000 speakers per year to outside customers. a. From the standpoint of the Audio Division, what is the lowest acceptable transfer price for speakers sold to the Hi-Fi Division? b. From the standpoint of the Hi-Fi Division, what is the highest acceptable transfer price for speakers acquired from the Audio Division? c. What is the range of acceptable transfer prices (if any) between the two divisions? If left free to negotiate without interference, would you expect the…

CVP Analysis of Multiple Products Alo Company produces commercial printers. One is the regular model, a basic model that is designed to copy and print in black and white. Another model, the deluxe model, is a color printer-scanner-copier. For the coming year, Alo expects to sell 90,000 regular models and 18,000 deluxe models. A segmented income statement for the two products is as follows: Sales Less: Variable costs Contribution margin Less: Direct fixed costs Segment margin Less: Common fixed costs Operating income Regular Model $14,400,000 8,640,000 $5,760,000 1,200,000 $4,560,000 Deluxe Model $12,240,000 7,344,000 $4,896,000 960,000 $3,936,000 Total $26,640,000 15,984,000 $10,656,000 2,160,000 $8,496,000 1,510,400 $6,985,600

7. Transfer Pricing Domagisko Company's Division 'S' (selling division) produces a small tool used by other companies as a key part in their products. Cost and sales data related to the small tool are given below: Selling price per unit Variable costs per unit P 50 P 30 Fixed costs per unit* P 12 based on capacity of 40,000 tools per year. The company's Division 'B' (buying division) is introducing a new product that will use the same tool such as the one produced by Division S. An outside supplier has quoted the Division B a price of P 48 per tool. Division B would like to purchase the tools from Division S, only if an acceptable transfer price can be worked out. REQUIRED: Consider the following independent cases: 1. Division S has ample idle capacity to handle all the Division B's needs: A) What is the minimum transfer price for Division S? B) What is the maximum transfer price for Division B? 2. Division S is presently selling all the tools it can produce to outside customers: A)…

Answer 2

Question

Chapter 11A, Problem 11A.1E

1.

To determine

Compute lowest and highest acceptable transfer price, range of acceptable transfer prices, and should company transfer carried out or reject if company sells 20,000 speakers.

Introduction: Transfer prices means the price charged on the product or service provided by on department of the company to another department of the company. Divisions are evaluated on the profit basis, or residual income price must be fixed for the transfer. Prices charged in these situations are referred as transfer prices.

1.

Expert Solution

Answer to Problem 11A.1E

Lowest acceptable transfer price is $42 and highest acceptable transfer price is $57.

Explanation of Solution

Transfer price for lowest acceptable price.

Transfer price≥ Variable cost per unit+Total contribution margin on lost salesNumber of units transferred Transfer price≥ $42+$0$5,000Transfer price≥ $42

Transfer price for highest acceptable price:

If company can buy the speakers from outside supplier for $57 then the transfer price for highest acceptable price will be $57. So it is acceptable for the company to pay the price that is the market price.

Transfer price≤ Cost of buying from outside supplier= $57

By combining the requirements of selling division and buying division the acceptable transfer price will be $42 if 5,000 speakers are sold. Managers understand their own businesses so they will be ready to accept this transfer price.
If seen from the standpoint of the company the transfer should take place. By combining the requirements of selling division and buying division the acceptable transfer price will be $42 if 5,000 speakers are sold. Company sold speakers for $42 than selling them at $57 that is the market price.

2.

To determine

Compute lowest and highest acceptable transfer price, range of acceptable transfer prices, and should company transfer carried out or reject if company sells all speakers.

Introduction: Transfer prices means the price charged on the product or service provided by on department of the company to another department of the company. Divisions are evaluated on the profit basis, or residual income price must be fixed for the transfer. Prices charged in these situations are referred as transfer prices.

2.

Expert Solution

Answer to Problem 11A.1E

Lowest acceptable transfer price is $60 and highest acceptable transfer price is $57.

Explanation of Solution

Transfer price for lowest acceptable price.

Transfer price≥ Variable cost per unit+Total contribution margin on lost salesNumber of units transferred Transfer price≥ $42+( $60−$42)×$5,000$5,000Transfer price≥ $60

Transfer price for highest acceptable price:

Company will not be ready to pay more than $57 per speaker as it will be costly for the company for buy it.

By combining the requirements of selling division and buying division in the acceptable transfer price, selling division should have $60 and buying division should not pay more than $57. The agreement made that transfer the speakers is not good to carry out.
The standpoint of the company, company should not carry on the transfer. By combining the requirements of selling division and buying division in the acceptable transfer price, selling division should have $60 and buying division should not pay more than $57. Here company saves $3 by giving up revenues of $60 and saving the $57.

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Answer 3

Question

Chapter 11A, Problem 11A.1E

1.

To determine

Compute lowest and highest acceptable transfer price, range of acceptable transfer prices, and should company transfer carried out or reject if company sells 20,000 speakers.

Introduction: Transfer prices means the price charged on the product or service provided by on department of the company to another department of the company. Divisions are evaluated on the profit basis, or residual income price must be fixed for the transfer. Prices charged in these situations are referred as transfer prices.

1.

Expert Solution

Answer to Problem 11A.1E

Lowest acceptable transfer price is $42 and highest acceptable transfer price is $57.

Explanation of Solution

Transfer price for lowest acceptable price.

Transfer price≥ Variable cost per unit+Total contribution margin on lost salesNumber of units transferred Transfer price≥ $42+$0$5,000Transfer price≥ $42

Transfer price for highest acceptable price:

If company can buy the speakers from outside supplier for $57 then the transfer price for highest acceptable price will be $57. So it is acceptable for the company to pay the price that is the market price.

Transfer price≤ Cost of buying from outside supplier= $57

By combining the requirements of selling division and buying division the acceptable transfer price will be $42 if 5,000 speakers are sold. Managers understand their own businesses so they will be ready to accept this transfer price.
If seen from the standpoint of the company the transfer should take place. By combining the requirements of selling division and buying division the acceptable transfer price will be $42 if 5,000 speakers are sold. Company sold speakers for $42 than selling them at $57 that is the market price.

2.

To determine

Compute lowest and highest acceptable transfer price, range of acceptable transfer prices, and should company transfer carried out or reject if company sells all speakers.

Introduction: Transfer prices means the price charged on the product or service provided by on department of the company to another department of the company. Divisions are evaluated on the profit basis, or residual income price must be fixed for the transfer. Prices charged in these situations are referred as transfer prices.

2.

Expert Solution

Answer to Problem 11A.1E

Lowest acceptable transfer price is $60 and highest acceptable transfer price is $57.

Explanation of Solution

Transfer price for lowest acceptable price.

Transfer price≥ Variable cost per unit+Total contribution margin on lost salesNumber of units transferred Transfer price≥ $42+( $60−$42)×$5,000$5,000Transfer price≥ $60

Transfer price for highest acceptable price:

Company will not be ready to pay more than $57 per speaker as it will be costly for the company for buy it.

By combining the requirements of selling division and buying division in the acceptable transfer price, selling division should have $60 and buying division should not pay more than $57. The agreement made that transfer the speakers is not good to carry out.
The standpoint of the company, company should not carry on the transfer. By combining the requirements of selling division and buying division in the acceptable transfer price, selling division should have $60 and buying division should not pay more than $57. Here company saves $3 by giving up revenues of $60 and saving the $57.

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Answer 4

Question

Chapter 11A, Problem 11A.1E

1.

To determine

Compute lowest and highest acceptable transfer price, range of acceptable transfer prices, and should company transfer carried out or reject if company sells 20,000 speakers.

Introduction: Transfer prices means the price charged on the product or service provided by on department of the company to another department of the company. Divisions are evaluated on the profit basis, or residual income price must be fixed for the transfer. Prices charged in these situations are referred as transfer prices.

1.

Expert Solution

Answer to Problem 11A.1E

Lowest acceptable transfer price is $42 and highest acceptable transfer price is $57.

Explanation of Solution

Transfer price for lowest acceptable price.

Transfer price≥ Variable cost per unit+Total contribution margin on lost salesNumber of units transferred Transfer price≥ $42+$0$5,000Transfer price≥ $42

Transfer price for highest acceptable price:

If company can buy the speakers from outside supplier for $57 then the transfer price for highest acceptable price will be $57. So it is acceptable for the company to pay the price that is the market price.

Transfer price≤ Cost of buying from outside supplier= $57

By combining the requirements of selling division and buying division the acceptable transfer price will be $42 if 5,000 speakers are sold. Managers understand their own businesses so they will be ready to accept this transfer price.
If seen from the standpoint of the company the transfer should take place. By combining the requirements of selling division and buying division the acceptable transfer price will be $42 if 5,000 speakers are sold. Company sold speakers for $42 than selling them at $57 that is the market price.

2.

To determine

Compute lowest and highest acceptable transfer price, range of acceptable transfer prices, and should company transfer carried out or reject if company sells all speakers.

Introduction: Transfer prices means the price charged on the product or service provided by on department of the company to another department of the company. Divisions are evaluated on the profit basis, or residual income price must be fixed for the transfer. Prices charged in these situations are referred as transfer prices.

2.

Expert Solution

Answer to Problem 11A.1E

Lowest acceptable transfer price is $60 and highest acceptable transfer price is $57.

Explanation of Solution

Transfer price for lowest acceptable price.

Transfer price≥ Variable cost per unit+Total contribution margin on lost salesNumber of units transferred Transfer price≥ $42+( $60−$42)×$5,000$5,000Transfer price≥ $60

Transfer price for highest acceptable price:

Company will not be ready to pay more than $57 per speaker as it will be costly for the company for buy it.

By combining the requirements of selling division and buying division in the acceptable transfer price, selling division should have $60 and buying division should not pay more than $57. The agreement made that transfer the speakers is not good to carry out.
The standpoint of the company, company should not carry on the transfer. By combining the requirements of selling division and buying division in the acceptable transfer price, selling division should have $60 and buying division should not pay more than $57. Here company saves $3 by giving up revenues of $60 and saving the $57.

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Answer 5

Chapter 11A, Problem 11A.1E

1.

To determine

Compute lowest and highest acceptable transfer price, range of acceptable transfer prices, and should company transfer carried out or reject if company sells 20,000 speakers.

Introduction: Transfer prices means the price charged on the product or service provided by on department of the company to another department of the company. Divisions are evaluated on the profit basis, or residual income price must be fixed for the transfer. Prices charged in these situations are referred as transfer prices.

1.

Expert Solution

Answer to Problem 11A.1E

Lowest acceptable transfer price is $42 and highest acceptable transfer price is $57.

Explanation of Solution

Transfer price for lowest acceptable price.

Transfer price≥ Variable cost per unit+Total contribution margin on lost salesNumber of units transferred Transfer price≥ $42+$0$5,000Transfer price≥ $42

Transfer price for highest acceptable price:

If company can buy the speakers from outside supplier for $57 then the transfer price for highest acceptable price will be $57. So it is acceptable for the company to pay the price that is the market price.

Transfer price≤ Cost of buying from outside supplier= $57

By combining the requirements of selling division and buying division the acceptable transfer price will be $42 if 5,000 speakers are sold. Managers understand their own businesses so they will be ready to accept this transfer price.
If seen from the standpoint of the company the transfer should take place. By combining the requirements of selling division and buying division the acceptable transfer price will be $42 if 5,000 speakers are sold. Company sold speakers for $42 than selling them at $57 that is the market price.

2.

To determine

Compute lowest and highest acceptable transfer price, range of acceptable transfer prices, and should company transfer carried out or reject if company sells all speakers.

Introduction: Transfer prices means the price charged on the product or service provided by on department of the company to another department of the company. Divisions are evaluated on the profit basis, or residual income price must be fixed for the transfer. Prices charged in these situations are referred as transfer prices.

2.

Expert Solution

Answer to Problem 11A.1E

Lowest acceptable transfer price is $60 and highest acceptable transfer price is $57.

Explanation of Solution

Transfer price for lowest acceptable price.

Transfer price≥ Variable cost per unit+Total contribution margin on lost salesNumber of units transferred Transfer price≥ $42+( $60−$42)×$5,000$5,000Transfer price≥ $60

Transfer price for highest acceptable price:

Company will not be ready to pay more than $57 per speaker as it will be costly for the company for buy it.

By combining the requirements of selling division and buying division in the acceptable transfer price, selling division should have $60 and buying division should not pay more than $57. The agreement made that transfer the speakers is not good to carry out.
The standpoint of the company, company should not carry on the transfer. By combining the requirements of selling division and buying division in the acceptable transfer price, selling division should have $60 and buying division should not pay more than $57. Here company saves $3 by giving up revenues of $60 and saving the $57.

Answer 6

Chapter 11A, Problem 11A.1E

1.

To determine

Compute lowest and highest acceptable transfer price, range of acceptable transfer prices, and should company transfer carried out or reject if company sells 20,000 speakers.

Introduction: Transfer prices means the price charged on the product or service provided by on department of the company to another department of the company. Divisions are evaluated on the profit basis, or residual income price must be fixed for the transfer. Prices charged in these situations are referred as transfer prices.

1.

Expert Solution

Answer to Problem 11A.1E

Lowest acceptable transfer price is $42 and highest acceptable transfer price is $57.

Explanation of Solution

Transfer price for lowest acceptable price.

Transfer price≥ Variable cost per unit+Total contribution margin on lost salesNumber of units transferred Transfer price≥ $42+$0$5,000Transfer price≥ $42

Transfer price for highest acceptable price:

If company can buy the speakers from outside supplier for $57 then the transfer price for highest acceptable price will be $57. So it is acceptable for the company to pay the price that is the market price.

Transfer price≤ Cost of buying from outside supplier= $57

By combining the requirements of selling division and buying division the acceptable transfer price will be $42 if 5,000 speakers are sold. Managers understand their own businesses so they will be ready to accept this transfer price.
If seen from the standpoint of the company the transfer should take place. By combining the requirements of selling division and buying division the acceptable transfer price will be $42 if 5,000 speakers are sold. Company sold speakers for $42 than selling them at $57 that is the market price.

Answer 7

Chapter 11A, Problem 11A.1E

1.

To determine

Compute lowest and highest acceptable transfer price, range of acceptable transfer prices, and should company transfer carried out or reject if company sells 20,000 speakers.

Introduction: Transfer prices means the price charged on the product or service provided by on department of the company to another department of the company. Divisions are evaluated on the profit basis, or residual income price must be fixed for the transfer. Prices charged in these situations are referred as transfer prices.

Answer 8

1.

Expert Solution

Answer to Problem 11A.1E

Lowest acceptable transfer price is $42 and highest acceptable transfer price is $57.

Answer 9

1.

Expert Solution

Answer 10

1.

Expert Solution

Answer 11

Expert Solution

Answer 12

Explanation of Solution

Transfer price for lowest acceptable price.

Transfer price≥ Variable cost per unit+Total contribution margin on lost salesNumber of units transferred Transfer price≥ $42+$0$5,000Transfer price≥ $42

Transfer price for highest acceptable price:

If company can buy the speakers from outside supplier for $57 then the transfer price for highest acceptable price will be $57. So it is acceptable for the company to pay the price that is the market price.

Transfer price≤ Cost of buying from outside supplier= $57

By combining the requirements of selling division and buying division the acceptable transfer price will be $42 if 5,000 speakers are sold. Managers understand their own businesses so they will be ready to accept this transfer price.
If seen from the standpoint of the company the transfer should take place. By combining the requirements of selling division and buying division the acceptable transfer price will be $42 if 5,000 speakers are sold. Company sold speakers for $42 than selling them at $57 that is the market price.

Answer 13

2.

To determine

Compute lowest and highest acceptable transfer price, range of acceptable transfer prices, and should company transfer carried out or reject if company sells all speakers.

Introduction: Transfer prices means the price charged on the product or service provided by on department of the company to another department of the company. Divisions are evaluated on the profit basis, or residual income price must be fixed for the transfer. Prices charged in these situations are referred as transfer prices.

2.

Expert Solution

Answer to Problem 11A.1E

Lowest acceptable transfer price is $60 and highest acceptable transfer price is $57.

Explanation of Solution

Transfer price for lowest acceptable price.

Transfer price≥ Variable cost per unit+Total contribution margin on lost salesNumber of units transferred Transfer price≥ $42+( $60−$42)×$5,000$5,000Transfer price≥ $60

Transfer price for highest acceptable price:

Company will not be ready to pay more than $57 per speaker as it will be costly for the company for buy it.

By combining the requirements of selling division and buying division in the acceptable transfer price, selling division should have $60 and buying division should not pay more than $57. The agreement made that transfer the speakers is not good to carry out.
The standpoint of the company, company should not carry on the transfer. By combining the requirements of selling division and buying division in the acceptable transfer price, selling division should have $60 and buying division should not pay more than $57. Here company saves $3 by giving up revenues of $60 and saving the $57.

Answer 14

2.

To determine

Compute lowest and highest acceptable transfer price, range of acceptable transfer prices, and should company transfer carried out or reject if company sells all speakers.

Introduction: Transfer prices means the price charged on the product or service provided by on department of the company to another department of the company. Divisions are evaluated on the profit basis, or residual income price must be fixed for the transfer. Prices charged in these situations are referred as transfer prices.

Answer 15

2.

Expert Solution

Answer to Problem 11A.1E

Lowest acceptable transfer price is $60 and highest acceptable transfer price is $57.

Answer 16

2.

Expert Solution

Answer 17

2.

Expert Solution

Answer 18

Expert Solution

Answer 19

Explanation of Solution

Transfer price for lowest acceptable price.

Transfer price≥ Variable cost per unit+Total contribution margin on lost salesNumber of units transferred Transfer price≥ $42+( $60−$42)×$5,000$5,000Transfer price≥ $60

Transfer price for highest acceptable price:

Company will not be ready to pay more than $57 per speaker as it will be costly for the company for buy it.

By combining the requirements of selling division and buying division in the acceptable transfer price, selling division should have $60 and buying division should not pay more than $57. The agreement made that transfer the speakers is not good to carry out.
The standpoint of the company, company should not carry on the transfer. By combining the requirements of selling division and buying division in the acceptable transfer price, selling division should have $60 and buying division should not pay more than $57. Here company saves $3 by giving up revenues of $60 and saving the $57.

Answer 20

Ch. 11A - Prob. 11A.1E Ch. 11A - Prob. 11A.2E Ch. 11A - Prob. 11A.3E Ch. 11A - Prob. 11A.4P Ch. 11A - Prob. 11A.5P Ch. 11A - Prob. 11A.6P Ch. 11A - Prob. 11A.7C

Answer to Problem 11A.1E

Explanation of Solution

Answer to Problem 11A.1E

Explanation of Solution

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Chapter 11A Solutions