FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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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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Transcribed Image Text: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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