Perfumes Ltd has two divisions: The Perfume Division and the Bottle Division. The company is decentralised, and each division is evaluated as a profit centre. The Bottle Division produces bottles that can be used by the Perfume Division. The Bottle Division's variable manufacturing cost per unit is $3.00 and shipping costs are $0.20 per unit. The Bottle Division's external sales price is $4.00 per unit. No shipping costs are incurred on sales to the Perfume Division. The Perfume Division can purchase similar bottles in the external market for $3.50.The Bottle Division has sufficient capacity to meet all external market demands in addition to meeting the demands of the Perfume Division. Required When is it more appropriate to use market-based transfer price rather than cost-based transfer price?

Carol Components operates a Production Division and a Packaging Division. Both divisions are evaluated as profit centers. Packaging buys components from Production and assembles them for sale. Production sells many components to third parties in addition to Packaging. Selected data from the two operations follow: Capacity (units) Sales pricea Variable costs b Fixed costs Production 50,600 $ 252 $ 108 $ 30,000,000 a For Production, this is the price to third parties. b For Packaging, this does not include the transfer price paid to Production. Packaging 25,300 $ 792 $ 300 $ 18,000,000 Suppose Production is located in Country A with a tax rate of 30 percent and Distribution in Country B with a tax rate of 10 percent. All other facts remain the same. a. Optimal transfer price b. Transfer price c. Transfer price Required: a. Current output in Production is 25,300 units. Packaging requests an additional 5,960 units to produce a special order. What transfer price would you recommend? b.…

Carol Components operates a Production Division and a Packaging Division. Both divisions are evaluated as profit centers. Packaging buys components from Production and assembles them for sale. Production sells many components to third parties in addition to Packaging. Selected data from the two operations follow: Capacity (units) Sales pricea Variable costs b Fixed costs Production 51,000 $ 260 $116 $ 30,000,000 a For Production, this is the price to third parties. b For Packaging, this does not include the transfer price paid to Production. a. Optimal transfer price b. Transfer price c. Transfer price Packaging 25,500 $ 800 $ 308 $ 18,000,000 Required: a. Current output in Production is 25,500 units. Packaging requests an additional 6,600 units to produce a special order. What transfer price would you recommend? b. Suppose Production is operating at full capacity. What transfer price would you recommend? c. Suppose Production is operating at 47,700 units. What transfer price would you…

Bath Bath Co is a company specialising in the manufacture and sale of baths.  Each bath consists of a main unit plus a set of bath fittings.  The company is split into two divisions, A and B.  Division B manufactures the bath and Division A manufactures sets of bath fittings, which are both sold externally and transferred to Division B.  Both of the divisions are treated as profit centres. The following data is available for both divisions:   Division A Division B External selling price of items £80 £450 Transfer price £75   Internal standard variable costs per item £20 £245 Annual fixed costs £4,400,000 £7,440,000 Annual production capacity 200,000 80,000 Maximum external demand 180,000 80,000 The transfer price charged by Division A to Division B was negotiated some years ago between the previous divisional managers, who have both now been replaced by new managers.  Head Office only allows Division B to purchase its fittings…

Suppose there is no external market for Ranbax. What quantity of Ranbax should the Letang Company produce to maximize overall income? How should this quantity be allocated between the two processing divisions?

Plish Company manufactures only one type of washing machine and has two divisions, the Compressor Division, and the Fabrication Division. The Compressor Division manufactures compressors for the Fabrication Division, which completes the washing machine and sells it to retailers. The Compressor Division "sells" compressors to the Fabrication Division. The market price for the Fabrication Division to purchase a compressor is $40.00. (Ignore changes in inventory.) The fixed costs for the Compressor Division are assumed to be the same over the range of 5,000-10,000 units. The fixed costs for the Fabrication Division are assumed to be $7.50 per unit at 10,000 units.          Compressor's costs per compressor are:                 Direct materials           $15.00                 Direct labor                 $7.25                 Variable overhead       $3.00                 Division fixed costs      $7.50          Fabrication's costs per completed air conditioner are:                 Direct…

Branded Shoe Company manufactures only one type of shoe and has two divisions, the Stitching Division and the Polishing  Division. The Stitching Division manufactures shoes for the Polishing Division, which completes the shoe and sells it to retailers. The Stitching Division "sells" shoes  to the Polishing Division. The market price for the Polishing Division to purchase a pair of shoes is $42. (Ignore changes in inventory.) The fixed costs for the Stitching Division are assumed to be the same over the range of 40,000-100,000 units. The fixed costs for the Polishing Division are assumed to be $14 per pair at 100,000 units.          Stitching's costs per pair of soles are:                 Direct materials              $10                 Direct labor                    $  8                 Variable overhead          $  6                 Division fixed costs         $ 4          Polishing's costs per completed pair of shoes are:                 Direct materials               $14…

T-Comm makes a variety of products. It is organized in two divisions, North and South. The managers for each division are paid, in part, based on the financial performance of their divisions. The South Division normally sells to outside customers but, on occasion, also sells to the North Division. When it does, corporate policy states that the price must be cost plus 15 percent to ensure a “fair” return to the selling division. South received an order from North for 600 units. South’s planned output for the year had been 2,400 units before North’s order. South’s capacity is 3,000 units per year. The costs for producing those 2,400 units follow.

Branded Shoe Company manufactures only one type of shoe and has two​ divisions, the Stitching Division and the Polishing Division. The Stitching Division manufactures shoes for the Polishing​ Division, which completes the shoes and sells them to retailers. The Stitching Division​ "sells" shoes to the Polishing Division. The market price for the Polishing Division to purchase a pair of shoes is $42.00.​(Ignore changes in​ inventory.) The fixed costs for the Stitching Division are assumed to be the same over the range of 40,000−101,000units. The fixed costs for the Polishing Division are assumed to be $19.00per pair at 101,000 units.   ​ Stitching's costs per pair of shoes​ are: Direct materials $15.00 Direct labor $13.00 Variable overhead $11.00 Division fixed costs $9.00   ​ Polishing's costs per completed pair of shoes​ are: Direct materials $16.00 Direct labor $10.00 Variable overhead $7.00 Division fixed costs $18.00   What is the market−based transfer price per pair of shoes from…

Branded Shoe Company manufactures only one type of shoe and has two divisions, the Stitching Division and the Polishing Division. The Stitching Division manufactures shoes for the Polishing Division, which completes the shoes and sells them to retailers. The Stitching Division "sells" shoes to the Polishing Division. The market price for the Polishing Division to purchase a pair of shoes is $52. (Ignore changes in inventory.) The fixed costs for the Stitching Division are assumed to be the same over the range of 40,000-103,000 units. The fixed costs for the Polishing Division are assumed to be $24 per pair at 103,000 units.           Stitching's costs per pair of shoes are:                Direct materials                        $20                Direct labor                                $18                Variable overhead                   $16                Division fixed costs                 $14           Polishing's costs per completed pair of shoes are:                Direct…