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Division A makes a part with the following characteristics:
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a) Division B, another division of the same company, would like to purchase 5,000 units of the part each period from Division A. Division A is currently selling 10,000 units to its outside customers. What should be the lowest acceptable transfer price from the perspective of Division A?
b}Refer back to your answer in the last problem. Division B is now purchasing these parts from an outside supplier at a price of $24 each. If Division B begins to purchase the 5,000 parts from Division A rather than the outside supplier, what is the company as a whole change in net income?
c} Division B, another division of the same company, would like to purchase 5,000 units of the part each period from Division A. Division A is currently selling 10,000 units to its outside customers. IF the transfer is made, variable costs will decrease by $2 per unit. What should be the lowest acceptable transfer price from the perspective of Division A?
d} Division B, another division of the same company, would like to purchase 5,000 units of the part each period from Division A. Division A is currently selling 15,000 units to its outside customers. What should be the lowest acceptable transfer price from the perspective of Division A?
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- General guideline, transfer pricing. The Slate Company manufactures and sells television sets. Its assembly division (AD) buys television screens from the screen division (SD) and assembles the TV sets. The SD, which is operating at capacity,incurs an incremental manufacturing cost of $65 per screen. The SD can sell all its output to the outside market at a priceof $100 per screen, after incurring a variable marketing and distribution cost of $8 per screen. If the AD purchases screens from outside suppliers at a price of $100 per screen, it will incur a variable purchasing cost of $7 per screen. Slate’s division managers can act autonomously to maximize their own division’s operating income.1. What is the minimum transfer price at which the SD manager would be willing to sell screens to the AD?2. What is the maximum transfer price at which the AD manager would be willing to purchase screens from the SD?3. Now suppose that the SD can sell only 70% of its output capacity of 20,000…arrow_forwardAssume you are the department B manager for Marleys manufacturing. Marley’s operates under a cost-based transfer structure. Assume you receive the majority of your raw materials from department A, which sells only to department B (they have no outside sales) Assume the market price for the items your department purchase is 15% below what you are being charged by department A of Marley’s manufacturing. Determine the operating income for department B, assuming department A “sold” department B 1,000 unit during the month and department A reduced the selling price to the market price. Round your percentage answer to one decimal.arrow_forwardPlease do not give image format and please Both solvearrow_forward
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