Materials used by Ford Company in producing Division A's product are currently purchased from outside suppliers at a cost of $30 per unit. However, the same materials are available from Division B. Division B has unused capacity and can producethe materials needed by Division A at a variable cost of $20 per unit.a. If a transfer price of $25 per unit is established and 60,000 units of material are transferred with no reductions in Division B's current sales, how much would Ford Company's total operating income increase?$ 600,000b. How much would the operating income of Division A increase?$ 300,000 vc. How much would the operating income of Division B increase?$ 300,000 Vd. If the negotiated price approach is used, what would be the range of acceptable transfer prices? Round your answer to two decimal places.x toX

The Transfer Pricing between the divisions should be such that company will not incur any decrease…

Answered: d. If the negotiated price approach is…

d. If the negotiated price approach is used, what would be the range of acceptable transfer prices? Round your answer to two decimal places. x to s

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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Question

Materials used by Ford Company in producing Division A's product are currently purchased from outside suppliers at a cost of $30 per unit. However, the same materials are available from Division B. Division B has unused capacity and can produce
the materials needed by Division A at a variable cost of $20 per unit.
a. If a transfer price of $25 per unit is established and 60,000 units of material are transferred with no reductions in Division B's current sales, how much would Ford Company's total operating income increase?
$ 600,000
b. How much would the operating income of Division A increase?
$ 300,000 v
c. How much would the operating income of Division B increase?
$ 300,000 V
d. If the negotiated price approach is used, what would be the range of acceptable transfer prices? Round your answer to two decimal places.
x to
X

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