Durham Parts (DP) makes a variety of products. It is organized in two divisions, Eastern and Western. The managers for each division are paid, in part, based on the financial performance of their divisions. The Western Division normally sells to outside customers but. on occasion, also sells to the Eastern Division. When It does, corporate policy states that the price must be cost plus 25 percent to ensure a "fair" return to the selling division. Western received an order from Eastern for 1,200 units. Western's planned output for the year had been 4,800 units before Eastern's order. Western's capacity is 6,000 units per year. The costs for producing those 4,800 units follow. Materials Direct labor Other costs varying with output Fixed costs (do not vary with output) Totals Total $364,800 177,600 139,200 288,000 $ 969,600 Per Unit $76 37 29 60 $ 202 Required: a. If you are the manager of the Western Division, what unit cost would you ask the Eastern Division to pay? b. If you are the manager of the Eastern Division, what unit cost would you argue you should pay? c. What unit cost would you recommend for a sale of units from the Western Division to the Eastern Division?
Durham Parts (DP) makes a variety of products. It is organized in two divisions, Eastern and Western. The managers for each division are paid, in part, based on the financial performance of their divisions. The Western Division normally sells to outside customers but. on occasion, also sells to the Eastern Division. When It does, corporate policy states that the price must be cost plus 25 percent to ensure a "fair" return to the selling division. Western received an order from Eastern for 1,200 units. Western's planned output for the year had been 4,800 units before Eastern's order. Western's capacity is 6,000 units per year. The costs for producing those 4,800 units follow. Materials Direct labor Other costs varying with output Fixed costs (do not vary with output) Totals Total $364,800 177,600 139,200 288,000 $ 969,600 Per Unit $76 37 29 60 $ 202 Required: a. If you are the manager of the Western Division, what unit cost would you ask the Eastern Division to pay? b. If you are the manager of the Eastern Division, what unit cost would you argue you should pay? c. What unit cost would you recommend for a sale of units from the Western Division to the Eastern Division?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Durham Parts (DP) makes a variety of products. It is organized in two divisions, Eastern and Western. The managers for each division
are paid, in part, based on the financial performance of their divisions. The Western Division normally sells to outside customers but,
on occasion, also sells to the Eastern Division. When It does, corporate policy states that the price must be cost plus 25 percent to
ensure a "fair" return to the selling division. Western received an order from Eastern for 1.200 units. Western's planned output for the
year had been 4,800 units before Eastern's order. Western's capacity is 6.000 units per year. The costs for producing those 4,800
units follow.
Materials
Direct labor
Other costs varying with output
Fixed costs (do not vary with output)
Totals
Total
$364,800
177,600
139,200
288,000
$ 969,600
Required:
a. If you are the manager of the Western Division, what unit cost would you ask the Eastern Division to pay?
b. If you are the manager of the Eastern Division, what unit cost would you argue you should pay?
c. What unit cost would you recommend for a sale of units from the Western Division to the Eastern Division?
Required A
Per Unit
$ 76
37
29
60
$ 202
Complete this question by entering your answers in the tabs below.
Required B Required C
If you are the manager of the Western Division, what unit cost would you ask the Eastern Division to pay?
Note: Do not round intermediate calculations. Round your final answer to 2 decimal places.
Per unit cost (plus 25%)
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