n each of the cases below, assume that Division X has a product that can be sold either to outside customers or to Division Y of the same company for use in its production process. The managers of the divisions are evaluated based on their divisional profits: Case A B Division X: Capacity in units 140,000 140,000 Number of units being sold to outside customers 140,000 115,000 Selling price per unit to outside customers $ 54 $ 38 Variable costs per unit $ 34 $ 20 Fixed costs per unit (based on capacity) $ 12 $ 10 Division Y: Number of units needed for production 25,000 25,000 Purchase price per unit now being paid to an outside supplier $ 50 $ 37 Required: 1-a. Refer to the data in case A above. Assume that $3 per unit in variable selling costs can be avoided on intracompany sales. Determine the transfer price of the selling division. 1-b. If the managers are free to negotiate and make decisions on their own, will a transfer take place? multiple choice 1 Yes No 2-a. Refer to the data in case B above. In this case there will be no reduction in variable selling costs on intracompany sales. Determine the transfer price of the selling division. 2-b. If the managers are free to negotiate and make decisions on their own, will a transfer take place? multiple choice 2 Yes No 2-c. What is the range of transfer price the managers of both divisions should agree?
n each of the cases below, assume that Division X has a product that can be sold either to outside customers or to Division Y of the same company for use in its production process. The managers of the divisions are evaluated based on their divisional profits:
| Case | ||||
| A | B | |||
| Division X: | ||||
| Capacity in units | 140,000 | 140,000 | ||
| Number of units being sold to outside customers | 140,000 | 115,000 | ||
| Selling price per unit to outside customers | $ | 54 | $ | 38 |
| Variable costs per unit | $ | 34 | $ | 20 |
| Fixed costs per unit (based on capacity) | $ | 12 | $ | 10 |
| Division Y: | ||||
| Number of units needed for production | 25,000 | 25,000 | ||
| Purchase price per unit now being paid to an outside supplier | $ | 50 | $ | 37 |
Required:
1-a. Refer to the data in case A above. Assume that $3 per unit in variable selling costs can be avoided on intracompany sales. Determine the transfer price of the selling division.
1-b. If the managers are free to negotiate and make decisions on their own, will a transfer take place?
multiple choice 1
-
Yes
-
No
2-a. Refer to the data in case B above. In this case there will be no reduction in variable selling costs on intracompany sales. Determine the transfer price of the selling division.
2-b. If the managers are free to negotiate and make decisions on their own, will a transfer take place?
multiple choice 2
-
Yes
-
No
2-c. What is the range of transfer price the managers of both divisions should agree?
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