multiple divisions. One division, Iron Products, makes a component that another division, Austin, is currently purchasing on the open market. Iron Products currently has a capacity to produce 495,000 components at a variable cost of $6.00 and a full cost of $9.00. Iron Products has outside sales of 455,000 components at a price of $13.00 per unit. Austin currently purchases 50,000 units from an outside supplier at a price of $11.50 per unit. Assume that Austin desires to use a single supplier for its component. a. What will be the effect on Rapid Industries' operating profit if the transfer is made internally? Assume the 50,000 units Austin needs are either purchased 100% internally or 100% externally. _ b. What is the minimum transfer price? (Round your answer to 2 decimal places.) Minimum Transfer Price

multiple divisions. One division, Iron Products, makes a component that another division, Austin, is currently purchasing on the open market. Iron Products currently has a capacity to produce 495,000 components at a variable cost of $6.00 and a full cost of $9.00. Iron Products has outside sales of 455,000 components at a price of $13.00 per unit. Austin currently purchases 50,000 units from an outside supplier at a price of $11.50 per unit. Assume that Austin desires to use a single supplier for its component. a. What will be the effect on Rapid Industries' operating profit if the transfer is made internally? Assume the 50,000 units Austin needs are either purchased 100% internally or 100% externally. _ b. What is the minimum transfer price? (Round your answer to 2 decimal places.) Minimum Transfer Price

Managerial Accounting: The Cornerstone of Business Decision-Making

7th Edition

ISBN:9781337115773

Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Chapter11: Performance Evaluation And Decentralization

Section: Chapter Questions

Problem 16BEA

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Rapid Industries has multiple divisions. One division, Iron Products, makes a component that another division, Austin, is currently purchasing on the open market. Iron Products currently has a capacity to produce 495,000 components at a variable cost of $6.50 and a full cost of $9.50. Iron Products has outside sales of 446,000 components at a price of $13.50 per unit. Austin currently purchases 55,000 units from an outside supplier at a price of $11.00 per unit. Assume that Austin desires to use a single supplier for its component. Required: a. What will be the effect on Rapid Industries' operating profit if the transfer is made internally? Assume the 55.000 units Austin needs are either purchased 100% internally or 100% externally. b. What is the minimum transfer price? c. What is the maximum transfer price? Complete this question by entering your answers in the tabs below. Required A Required B Required C What will be the effect on Rapid Industries' operating profit if the transfer…
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Ballantine Corp. produces and sells lead crystal glassware. The firm consists of two divisions, Commercial and Specialty. The Commercial division manufactures 300,000 glasses per year. It incurs variable manufacturing costs of $8 per unit and annual fixed manufacturing costs of $900,000. The Commercial division sells 100,000 units externally at a price of $12 each, mostly to department stores. It transfers the remaining 200,000 units internally to the Specialty division, which modifies the units, adds an etched design, and sells them directly to consumers online. Ballantine Corp. has adopted a market-based transfer-pricing policy. For each glass it receives from the Commercial division, the Specialty division pays the weighted-average external price the Commercial division charges its customers outside the company. The current transfer price is accordingly set at $12. Eileen McCarthy, the manager of the Commercial division, receives an offer from Home Décor, a chain of upscale home…
Ballantine Corp. produces and sells lead crystal glassware. The firm consists of two divisions, Commercial and Specialty. The Commercial division manufactures 300,000 glasses per year. It incurs variable manufacturing costs of $8 per unit and annual fixed manufacturing costs of $900,000. The Commercial division sells 100,000 units externally at a price of $12 each, mostly to department stores. It transfers the remaining 200,000 units internally to the Specialty division, which modifies the units, adds an etched design, and sells them directly to consumers online. Ballantine Corp. has adopted a market-based transfer-pricing policy. For each glass it receives from the Commercial division, the Specialty division pays the weighted-average external price the Commercial division charges its customers outside the company. The current transfer price is accordingly set at $12. Eileen McCarthy, the manager of the Commercial division, receives an offer from Home Décor, a chain of upscale home…