Division Y has asked Division X of the same company to supply it with 9,000 units of part L763 this year to use in Division Y has received a bid from an outside supplier for the parts at a price of $53 per unit. Division X has the c 36,000 units of part L763 per year. Division X expects to sell 32,400 units of part L763 to outside customers this $58.00 per unit. To fill the order from Division Y, Division X would have to cut back its sales to outside customers part L763 at a variable cost of $45 per unit. The cost of packing and shipping the parts for outside customers is

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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Division Y has asked Division X of the same company to supply it with 9,000 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 $53 per unit. Division X has the capacity to produce
36,000 units of part L763 per year. Division X expects to sell 32,400 units of part L763 to outside customers this year at a price of
$58.00 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 $45 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
9,000 parts this year from Division X to Division Y?
Note: Round your final answers to 2 decimal places.
Range of transfer prices
Transfer price <
b. Is it in the best interests of the overall company for this transfer to take place?
Yes
O NO
Transcribed Image Text:Division Y has asked Division X of the same company to supply it with 9,000 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 $53 per unit. Division X has the capacity to produce 36,000 units of part L763 per year. Division X expects to sell 32,400 units of part L763 to outside customers this year at a price of $58.00 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 $45 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 9,000 parts this year from Division X to Division Y? Note: Round your final answers to 2 decimal places. Range of transfer prices Transfer price < b. Is it in the best interests of the overall company for this transfer to take place? Yes O NO
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