(1)
Transfer price: The price charged for the goods and services transferred among the divisions is referred to as transfer price.
Income statement: The financial statement which reports revenues and expenses from business operations and the result of those operations as net income or net loss for a particular time period is referred to as income statement.
To indicate: If the market price be the appropriate transfer price for Company G
(2)
The increase in CR Division, CL Division, and Company G income from operations as a result of transfer pricing
(3)
To prepare: The income statements for CR and CL Divisions of Company G for the year ended December 31, 2016
(4)
The increase in CR Division, CL Division, and Company G income from operations as a result of transfer pricing
(5) (a)
The range of transfer price, if negotiated price approach is used
(b)
To suggest: The transfer price
Want to see the full answer?
Check out a sample textbook solutionChapter 24 Solutions
Accounting (Text Only)
- Decision on transfer pricing Materials used by the Instrument Division of XPort Industries are currently purchased from outside suppliers at a cost of $249 per unit. However, the same materials are available from the Components Division. The Components Division has unused capacity and can produce the materials needed by the Instrument Division at a variable cost of $207 per unit. Assume that a transfer price of $237 has been established and that 25,200 units of materials are transferred, with no reduction in the Components Division’s current sales. a. How much would XPort Industries’ total income from operations increase?$fill in the blank 1 b. How much would the Instrument Division’s income from operations increase?$fill in the blank 2 c. How much would the Components Division’s income from operations increase?$fill in the blank 3 d. Any transfer price will cause the total income of the company to increase , as long as the supplier division capacity is used toward making…arrow_forwardTransfer Pricing; Divisional Performance Weller Industries is a decentralized organization with six divisions. The company’s Electrical Division produces a variety of electrical items, including an X52 electrical fitting. The Electrical Division (which is operating at capacity) sells this fitting to its regular customers for $7.50 each; the fitting has a variable manufacturing cost of $4.25. The company’s Brake Division has asked the Electrical Division to supply it with a large quantity of X52 fittings for only $5 each. The Brake Division, which is operating at 50% of capacity, will put the fitting into a brake unit that it will produce and sell to a large commercial airline manufacturer. The cost of the brake unit being built by the Brake Division follows: Although the $5 price for the X52 fitting represents a substantial discount from the regular $7.50 price, the manager of the Brake Division believes the price concession is necessary if his division is to get the contract for the…arrow_forwardDecision on Transfer Pricing Materials used by the Instrument Division of XPort Industries are currently purchased from outside suppliers at a cost of $193 per unit. However, the same materials are available from the Components Division. The Components Division has unused capacity and can produce the materials needed by the Instrument Division at a variable cost of $160 per unit. a. If a transfer price of $176 per unit is established and 27,900 units of materials are transferred, with no reduction in the Components Division's current sales, how much would XPort Industries’ total income from operations increase?$fill in the blank 1 b. How much would the Instrument Division’s income from operations increase?$fill in the blank 2 c. How much would the Components Division's income from operations increase?$fill in the blank 3arrow_forward
- Determining Market-Based and Negotiated Transfer Prices 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 2.5 cm steel blade that can be used by Tavaris Division in the production of scalpels. The market price of the blade is $25. Cost information for the blade is: Variable product cost $ 9.40 Fixed cost 5.00 Total product cost $14.40 Tavaris needs 18,000 units of the 2.5 cm blade per year. Alamosa Division is at full capacity (84,000 units of the blade). Required: 1. If Carreker, Inc., has a transfer pricing policy that requires transfer at market price, what would the transfer price be?$ fill in the blank 1per unit Do you suppose that Alamosa and Tavaris divisions would choose to transfer at that price? 2. Now suppose that Carreker, Inc., allows negotiated transfer pricing and that Alamosa Division can avoid $1.50 of selling…arrow_forwardDetermining Market-Based and Negotiated Transfer Prices Carreker, Inc., has number of divisions, including the Alamosa Division, producer of surgical blades, and the Tavaris Division, a manufacturer of medical instruments. Alamosa Division produces a 2.7 cm steel blade that can be used by Tavaris Division in the production of scalpels. The market price of the blade is $20. Cost information for the blade is: Variable product cost $ 9.70 Fixed cost 5.20 Total product cost $14.90 Tavaris needs 17,000 units of the 2.7 cm blade per year. Alamosa Division is at full capacity (87,000 units of the blade). Required: 1. If Carreker, Inc., has a transfer pricing policy that requires transfer at market price, what would the transfer price be? 24 per unit Do you suppose that Alamosa and Tavaris divisions would choose to transfer at that price? Yes v 2. Now suppose that Carreker, Inc., allows negotiated transfer pricing and that Alamosa Division can avoid $1.55 of selling and distribution expense by…arrow_forwardDecision on Transfer Pricing Materials used by the Instrument Division of T_Kong Industries are currently purchased from outside suppliers at a cost of $316 per unit. However, the same materials are available from the Components Division. The Components Division has unused capacity and can produce the materials needed by the Instrument Division at a variable cost of $262 per unit. a. If a transfer price of $288 per unit is established and 42,400 units of materials are transferred, with no reduction in the Components Division’s current sales, how much would T_Kong Industries’ total income from operations increase? b. How much would the Instrument Division’s income from operations increase? c. How much would the Components Division’s income from operations increase?arrow_forward
- Decision on Transfer Pricing Materials used by the Instrument Division of T Kong Industries are currently purchased from outside suppliers at a cost of $262 per unit. However, the same materials are available from the Components Division. The Components Division has unused capacity and can produce the materials needed by the Instrument Division at a variable cost of $217 per unit. a. If a transfer price of $238 per unit is established and 46,700 units of materials are transferred, with no reduction in the Components Division's current sales, how much would T_Kong Industries' total income from operations increase? X b. How much would the Instrument Division's income from operations increase? c. How much would the Components Division's income from operations increase? Xarrow_forwardDecision on transfer pricing Materials used by the Instrument Division of Ziegler Inc. are currently purchased from outside suppliers at a cost of $375 per unit. However, the same materials are available from the Components Division. The Components Division has unused capacity and can produce the materials needed by the Instrument Division at a variable cost of $311 per unit. Assume that a transfer price of $356 has been established and that 23,900 units of materials are transferred, with no reduction in the Components Division's current sales. a. How much would Ziegler Inc.'s total operating income increase? 770,000 X b. How much would the Instrument Division's operating income increase? 770,000 X How much would the Components Division's operating income increase? 770,000 X d. Any transfer price will cause the total income of the company to increase materials for products that are ultimately sold to the outside. X, as long as the supplier division capacity is used toward makingarrow_forwardDecision on Transfer Pricing Materials used by the Instrument Division of Ziegler Inc. are currently purchased from outside suppliers at a cost of $1,350 per unit. However, the same materials are available from the Components Division. The Components Division has unused capacity and can produce the materials needed by the Instrument Division at a variable cost of $900 per unit. Assume that a transfer price of $1,200 has been established and that 75,000 units of materials are transferred, with no reduction in the Components Division's current sales. a. How much would Ziegler Inc.'s total operating income increase?$fill in the blank 1 b. How much would the Instrument Division's operating income increase?$fill in the blank 2 c. How much would the Components Division's operating income increase?$fill in the blank 3 d. Any transfer price will cause the total income of the company to , as long as the supplier division capacity is toward making materials for products that are…arrow_forward
- Decision on transfer pricing Materials used by the Instrument Division of Ziegler Inc. are currently purchased from outside suppliers at a cost of $447 per unit. However, the same materials are available from the Components Division. The Components Division has unused capacity and can produce the materials needed by the Instrument Division at a variable cost of $371 per unit. Assume that a transfer price of $425 has been established and that 26,500 units of materials are transferred, with no reduction in the Components Division's current sales. a. How much would Ziegler Inc.'s total operating income increase? b. How much would the Instrument Division's operating income increase? C. How much would the Components Division's operating income increase? d. Any transfer price will cause the total income of the company to as long as the supplier division capacity is toward making materials for products that are ultimately sold to the outside.arrow_forwardTransfer Pricing from the Viewpoint of the Entire Company Division A manufactures electronic circuit boards. The boards can be sold either to Division B of the same company or to outside customers. Last year, the following activity occurred in Division A: Sales to Division B were at the same price as sales to outside customers. The circuit boards purchased by Division B were used in an electronic instrument manufactured by that division (one board per instrument). Division B incurred $100 in additional variable cost per instrument and then sold the instruments for $300 each. Required: 1. Prepare income statements for Division A, Division B, and the company as a whole. 2. Assume Division A’s manufacturing capacity is 20,000 circuit boards. Next year, Division B wants to purchase 5,000 circuit boards from Division A rather than 4,000. (Circuit boards of this type are not available from outside sources.) From the standpoint of the company as a whole, should Division A sell the 1,000…arrow_forwardDecision on transfer pricing Materials used by the Instrument Division of Ziegler Inc. are currently purchased from outside suppliers at a cost of $316 per unit. However, the same materials are available from the Components Division. The Components Division has unused capacity and can produce the materials needed by the Instrument Division at a variable cost of $262 per unit. a. If a transfer price of $288 per unit is established and 27,900 units of materials are transferred, with no reduction in the Components Division's current sales, how much would Ziegler Inc.'s total operating income increase? b. How much would the Instrument Division's operating income increase? $ C. How much would the Components Division's operating income increase?arrow_forward
- Financial And Managerial AccountingAccountingISBN:9781337902663Author:WARREN, Carl S.Publisher:Cengage Learning,Managerial AccountingAccountingISBN:9781337912020Author:Carl Warren, Ph.d. Cma William B. TaylerPublisher:South-Western College PubManagerial Accounting: The Cornerstone of Busines...AccountingISBN:9781337115773Author:Maryanne M. Mowen, Don R. Hansen, Dan L. HeitgerPublisher:Cengage Learning
- Principles of Accounting Volume 2AccountingISBN:9781947172609Author:OpenStaxPublisher:OpenStax College