Lola Metals has two decentralized divisions, Stamping and Finishing. Finishing always has purchased certain units from Stamping at $52 per unit. Stamping plans to raise the price to $64 per unit, the price it receives from outside customers. As a result, Finishing is considering buying these units from outside suppliers for $52 per unit. Corporate policy allows division managers to choose both customers and suppliers regardless of the transfer price. Stamping's costs follow: Variable costs per unit Annual fixed costs Annual production of these units sold to Alpha $ 50 $ 63,200 30, 200 units Required: a. If Finishing buys from an outside supplier, the facilities that Stamping uses to produce these units will remain idle. What will be the impact on corporate profits if Lola Metals enforces a transfer price of $64 per unit between Stamping and Finishing? b. Suppose Lola Metals enforces a transfer price of $52 and insists that Stamping sell to Finishing before selling to outside customers. Stamping currently operates at capacity and can easily sell on the outside market the units it sells to Finishing. What cost will Lola Metals incur as a result of this policy?

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
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Chapter1: Financial Statements And Business Decisions
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Lola Metals has two decentralized divisions, Stamping and Finishing. Finishing always has purchased certain units from Stamping at
$52 per unit. Stamping plans to raise the price to $64 per unit, the price it receives from outside customers. As a result, Finishing is
considering buying these units from outside suppliers for $52 per unit. Corporate policy allows division managers to choose both
customers and suppliers regardless of the transfer price. Stamping's costs follow:
Variable costs per unit
Annual fixed costs
Annual production of these units sold to Alpha
Required:
a. If Finishing buys from an outside supplier, the facilities that Stamping uses to produce these units will remain idle. What will be the
impact on corporate profits if Lola Metals enforces a transfer price of $64 per unit between Stamping and Finishing?
b. Suppose Lola Metals enforces a transfer price of $52 and insists that Stamping sell to Finishing before selling to outside customers.
Stamping currently operates at capacity and can easily sell on the outside market the units it sells to Finishing. What cost will Lola
Metals incur as a result of this policy?
Complete this question by entering your answers in the tabs below.
Required A
Required B
$ 50
$63,200
30,200 units
If Finishing buys from an outside supplier, the facilities that Stamping uses to produce these units will remain idle. What will
be the impact on corporate profits if Lola Metals enforces a transfer price of $64 per unit between Stamping and Finishing?
Lola Metal's contribution margin would
< Required A
Required B >
Transcribed Image Text:Lola Metals has two decentralized divisions, Stamping and Finishing. Finishing always has purchased certain units from Stamping at $52 per unit. Stamping plans to raise the price to $64 per unit, the price it receives from outside customers. As a result, Finishing is considering buying these units from outside suppliers for $52 per unit. Corporate policy allows division managers to choose both customers and suppliers regardless of the transfer price. Stamping's costs follow: Variable costs per unit Annual fixed costs Annual production of these units sold to Alpha Required: a. If Finishing buys from an outside supplier, the facilities that Stamping uses to produce these units will remain idle. What will be the impact on corporate profits if Lola Metals enforces a transfer price of $64 per unit between Stamping and Finishing? b. Suppose Lola Metals enforces a transfer price of $52 and insists that Stamping sell to Finishing before selling to outside customers. Stamping currently operates at capacity and can easily sell on the outside market the units it sells to Finishing. What cost will Lola Metals incur as a result of this policy? Complete this question by entering your answers in the tabs below. Required A Required B $ 50 $63,200 30,200 units If Finishing buys from an outside supplier, the facilities that Stamping uses to produce these units will remain idle. What will be the impact on corporate profits if Lola Metals enforces a transfer price of $64 per unit between Stamping and Finishing? Lola Metal's contribution margin would < Required A Required B >
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