Desks Unlimited makes all types of office desks.  The Computer Desk Division is currently producing 10,000 desks per year with a capacity of 15,000 desks.  The variable costs assigned to each desk are $400 and annual fixed costs of the division are $900,000.  The computer desk has a market price of $600. The Executive Division wants to buy 5,000 desks from the Computer division at $460 for its custom office design business.  The Computer Division manager knows that the division will save $50 of the Variable costs since there will be no variable shipping or commissions to be paid on the transfer order.  However, the Computer Desk manager refused the order because the price is below full cost.  The Executive Division manager argues that the order should be accepted because it will lower the fixed cost per desk from $90 to $60 and will take the division to its capacity, thereby causing operations to be at their most efficient level.  [This is how he came up with the offered $460 transfer price ($400 + $60.)] Consider each division and the firm as a whole. Show your work and clearly label your answers to the following: a. What is the appropriate transfer price range? b. If the Computer Division accepts the $460 price per unit and a transfer is made, is the firm overall better or worse off and by how much? c. If the Computer Division accepts the $460 price and a transfer is made, how much better or worse off is the Computer Division?

At Stardust Gems, a faux gem and jewelry company, the setting department is a bottleneck. The company is considering hiring an extra worker, whose salary will be $67,000 per year, to ease the problem. Using the extra worker, the company will be able to produce and sell 9,000 more units per year. The selling price per unit is $20. The cost per unit currently is $15.85 as shown: What is the annual financial impact of hiring the extra worker for the bottleneck process?

Variety Artisans has a bottleneck in their production that occurs within the engraving department. Arjun Naipul, the COO, is considering hiring an extra worker, whose salary will be $45,000 per year, to solve the problem. With this extra worker, the company could produce and sell 3,500 more units per year. Currently, the selling price per unit is $18 and the cost per unit is $5.85. Using the information provided, calculate the annual financial impact of hiring the extra worker.

Rolertyme Company manufactures roller skates. With the exception of the rollers, all parts of the skates are produced internally. Neeta Booth, president of Rolertyme, has decided to make the rollers instead of buying them from external suppliers. The company needs 100,000 sets per year (currently it pays 1.90 per set of rollers). The rollers can be produced using an available area within the plant. However, equipment for production of the rollers would need to be leased (30,000 per year lease payment). Additionally, it would cost 0.50 per machine hour for power, oil, and other operating expenses. The equipment will provide 60,000 machine hours per year. Direct material costs will average 0.75 per set, and direct labor will average 0.25 per set. Since only one type of roller would be produced, no additional demands would be made on the setup activity. Other overhead activities (besides machining and setups), however, would be affected. The companys cost management system provides the following information about the current status of the overhead activities that would be affected. (The supply and demand figures do not include the effect of roller production on these activities.) The lumpy quantity indicates how much capacity must be purchased should any expansion of activity supply be needed. The purchase price is the cost of acquiring the capacity represented by the lumpy quantity. This price also represents the cost of current spending on existing activity supply (for each block of activity). Production of rollers would place the following demands on the overhead activities: Producing the rollers also means that the purchase of outside rollers will cease. Thus, purchase orders associated with the outside acquisition of rollers will drop by 5,000. Similarly, the moves for the handling of incoming orders will decrease by 200. The company has not inspected the rollers purchased from outside suppliers. Required: 1. Classify all resources associated with the production of rollers as flexible resources and committed resources. Label each committed resource as a short- or long-term commitment. How should we describe the cost behavior of these short- and long-term resource commitments? Explain. 2. Calculate the total annual resource spending (for all activities except for setups) that the company will incur after production of the rollers begins. Break this cost into fixed and variable activity costs. In calculating these figures, assume that the company will spend no more than necessary. What is the effect on resource spending caused by production of the rollers? 3. Refer to Requirement 2. For each activity, break down the cost of activity supplied into the cost of activity output and the cost of unused activity.

Shelby Industries has a capacity to produce 45.000 oak shelves per year and is currently selling 40,000 shelves for $32 each. Martin Hardwoods has approached Shelby about buying 1,200 shelves for a new project and is willing to pay $26 each. The shelves can be packaged in bulk; this saves Shelby $1.50 per shelf compared to the normal packaging cost. Shelves have a unit variable cost of $27 with fixed costs of $350,000. Because the shelves dont require packaging, the unit variable costs for the special order will drop from $27 per shelf to $25.50 per shelf. Shelby has enough idle capacity to accept the contract. What is the minimum price per shelf that Shelby should accept for this special order?

The Molding Division of Cotwold Company manufactures a plastic casing used by the Assembly Division. This casing is also sold to external customers for $32 per unit. Variable costs for the casing are $19 per unit, and fixed cost is $4 per unit. Cotwold executives would like for the Molding Division to transfer 15,000 units to the Assembly Division at a price of $24 per unit. Assume that the Molding Division has enough excess capacity to accommodate the request. Required: Should the Molding Division accept the $24 transfer price proposed by management? Calculate the effect on the Molding Division’s net income if it accepts the $24 transfer price

The Molding Division of Cotwold Company manufactures a plastic casing used by the Assembly Division. This casing is also sold to external customers for $25 per unit. Variable costs for the casing are $12 per unit and fixed cost is $3 per unit. Cotwold executives would like for the Molding Division to transfer 8,000 units to the Assembly Division at a price of $18 per unit. Assume the Molding Division is operating at full capacity. Required: 1. Should it accept the transfer price proposed by management? 2. Identify the minimum transfer price that the Molding Division will accept. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Should it accept the transfer price proposed by management? Should it accept the transfer price proposed by management? Required 1 Required 2 >

The Trailer division of Baxter Bicycles makes bike trailers that attach to bicycles and can carry children or cargo. The trailers have a market price of $98 each. Each trailer incurs $41 of variable manufacturing costs. The Trailer division has capacity for 26,000 trailers per year and has fixed costs of $420,000 per year.Assume the Assembly division of Baxter Bicycles wants to buy 4,100 trailers per year from the Trailer division. If the Trailer division can sell all of the trailers it manufactures to outside customers (and has no excess capacity), what price should be used on transfers between divisions?Assume the Trailer division currently only sells 10,300 trailers to outside customers and has excess capacity. The Assembly division wants to buy 4,100 trailers per year from the Trailer division. What is the range of acceptable prices on transfers between divisions?

The Molding Division of Cotwold Company manufactures a plastic casing used by the Assembly Division. This casing is also sold to external customers for $36 per unit Variable costs for the casing are $12 per unit, and fixed cost is $5 per unit Cotwold executives would like for the Molding Division to transfer 19,000 units to the Assembly Division at a price of $30 per unit. Assume that the Molding Division has excess capacity, but the Assembly Division requires the casing to be made from a specific blend of plastics. This would raise the variable cost per unit to $33 Required: 1. Should the Molding Division accept the $30 transfer price proposed by management? 2. Determine the minimum transfer price that it will accept. 3. Determine the mutually beneficial transfer price so that the two divisions equally split the profits from the transfer

IPort Products makes cases for portable music players in two processes, cutting and sewing. The cutting process has a capacity of 115,000 units per year; sewing has a capacity of 150,000  units per year. Cost information follows.           Inspection and testing costs $ 47,500   Scrap costs (all in the cutting dept.)   147,500       Demand is very strong. At a sales price of $15.00 per case, the company can sell whatever output it can produce.   IPort Products can start only 115,000 units into production in the Cutting Department because of capacity constraints. Defective units are detected at the end of production in the Cutting Department. At that point, defective units are scrapped. Of the 115,000 units started at the cutting operation, 17,250 units are scrapped. Unit costs in the Cutting Department for both good and defective units equal $11.30 per unit, including an allocation of the total fixed manufacturing costs of $264,500 per year to units.           Direct…