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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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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Decorative Doors Ltd produces two types of doors: interior and exterior. The company’s costing system has two direct-cost categories (materials and labour) and one indirect-cost pool. The costing system allocates indirect costs on the basis of machine-hours. Recently, the owners of Decorative Doors have been concerned about a decline in the market share for their interior doors, usually their biggest seller. Information related to Decorative Doors production for the most recent year is as follows: Particulars Interior Exterior Units sold 3200 1800 Selling price $125 $200 Direct material cost per unit $30 $45 Direct production labour cost per hour5 $16 $16 Direct production labour-hours per unit 1.50 2.25 Production runs 40 85 Material moves 72 168 Machine set-ups 45 155 Machine-hours 5500 4500 Number of inspections 250 150 The owners have heard of other companies in the industry that are now…
Troy Engines, Limited, manufactures a variety of engines for use in heavy equipment. The company has always produced all of the necessary parts for its engines, including all of the carburetors. An outside supplier has offered to sell one type of carburetor to Troy Engines, Limited, for a cost of $35 per unit. To evaluate this offer, Troy Engines, Limited, has gathered the following information relating to its own cost of producing the carburetor internally: Per Unit 22,000 Units Per Year Direct materials $ 15 $ 330,000 Direct labor 8 176,000 Variable manufacturing overhead 3 66,000 Fixed manufacturing overhead, traceable 3*Footnote asterisk 66,000 Fixed manufacturing overhead, allocated 6 132,000 Total cost $ 35 $ 770,000 *Footnote asteriskOne-third supervisory salaries; two-thirds depreciation of special equipment (no resale value). Required: Assuming the company has no alternative use for the facilities that are now being used to produce the carburetors, what…
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