FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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Division Y has asked Division X of the same company to supply it with 5,600 units of part L763 this year to use in one of its products. Division Y has received a bid from an outside supplier for the parts at a price of $36 per unit. Division X has the capacity to produce 22,400 units of part L763 per year. Division X expects to sell 20,160 units of part L763 to outside customers this year at a price of $37.60 per unit. To fill the order from Division Y, Division X would have to cut back its sales to outside customers. Division X produces part L763 at a variable cost of $28 per unit. The cost of packing and shipping the parts for outside customers is $2 per unit. These packing and shipping costs would not have to be incurred on sales of the parts to Division Y.
Required:
a. What is the range of transfer prices within which both the Divisions' profits would increase as a result of agreeing to the transfer of 5,600 parts this year from Division X to Division Y? (Round your final answers to 2 decimal places.)
range of transfer price ?? <transfer price <??
b. Is it in the best interests of the overall company for this transfer to take place?
multiple choice
-
Yes
-
No
2.
Germano Products, Incorporated, has a Pump Division that manufactures and sells a number of products, including a standard pump that could be used by another division in the company, the Pool Products Division, in one of its products. Data concerning that pump appear below:
| Capacity in units | 67,500 |
|---|---|
| Selling price to outside customers | $ 75 |
| Variable cost per unit | $ 26 |
| Fixed cost per unit (based on capacity) | $ 30 |
The Pool Products Division is currently purchasing 15,000 of these pumps per year from an overseas supplier at a cost of $70 per pump.
Assume that the Pump Division is selling all of the pumps it can produce to outside customers. Does there exist a transfer price that would make both the Pump and Pool Products Division financially better off than if the Pool Products Division were to continue buying its pumps from the outside supplier?
Multiple Choice
-
Yes, both divisions are always better off regardless of whether the selling division has enough idle capacity to handle all of the buying division's needs.
-
Yes, the minimum transfer price that the selling division should be willing to accept is less than the maximum transfer price that the buying division should be willing to accept.
-
No, the minimum transfer price that the selling division should be willing to accept exceeds the maximum transfer price that the buying division should be willing to accept.
-
The answer cannot be determined from the information that has been provided.
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