FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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![Required information
[The following information applies to the questions displayed below.]
In each of the cases below, assume Division X has a product that can be sold to outside customers or to Division Y of the
same company. The managers of the divisions are evaluated based on their divisional profits.
Division X:
Capacity in units
Number of units being sold to outside customers.
Selling price per unit to outside customers
Variable costs per unit
Fixed costs per unit (based on capacity)
Division Y:
Number of units needed for production.
Purchase price per unit now being paid to an outside.
supplier
Case
A
B
107,000 109,000
107,000
88,000
$ 53
$ 21
$9
< Prev
21,000
$ 45
$34
$19
$4
Required:
1. Refer to the data in case A above. Assume in this case $3 per unit in variable selling costs can be avoided on intracompany sales.
5 of 5
21,000
$ 38
a. What is the lowest acceptable transfer price from the perspective of the selling division?
b. What is the highest acceptable transfer price from the perspective of the buying division?
c. What is the range of acceptable transfer prices (if any) between the two divisions? If the managers are free to negotiate and make
decisions on their own, will a transfer probably take place?
Next >](https://content.bartleby.com/qna-images/question/54a790a0-66fb-484d-b679-2f5bcef08da6/ef8b8693-ded2-430e-adc8-bf46f04c5cad/yjehr5o_processed.jpeg)
Transcribed Image Text:Required information
[The following information applies to the questions displayed below.]
In each of the cases below, assume Division X has a product that can be sold to outside customers or to Division Y of the
same company. The managers of the divisions are evaluated based on their divisional profits.
Division X:
Capacity in units
Number of units being sold to outside customers.
Selling price per unit to outside customers
Variable costs per unit
Fixed costs per unit (based on capacity)
Division Y:
Number of units needed for production.
Purchase price per unit now being paid to an outside.
supplier
Case
A
B
107,000 109,000
107,000
88,000
$ 53
$ 21
$9
< Prev
21,000
$ 45
$34
$19
$4
Required:
1. Refer to the data in case A above. Assume in this case $3 per unit in variable selling costs can be avoided on intracompany sales.
5 of 5
21,000
$ 38
a. What is the lowest acceptable transfer price from the perspective of the selling division?
b. What is the highest acceptable transfer price from the perspective of the buying division?
c. What is the range of acceptable transfer prices (if any) between the two divisions? If the managers are free to negotiate and make
decisions on their own, will a transfer probably take place?
Next >
Transcribed Image Text:Division Y:
Number of units needed for production.
Purchase price per unit now being paid to an outside
supplier
Required:
1. Refer to the data in case A above. Assume in this case $3 per unit in variable selling costs can be avoided on intracompany sales.
21,000 21,000
$ 45
$ 38
a. What is the lowest acceptable transfer price from the perspective of the selling division?
b. What is the highest acceptable transfer price from the perspective of the buying division?
c. What is the range of acceptable transfer prices (if any) between the two divisions? If the managers are free to negotiate and make
decisions on their own, will a transfer probably take place?
Complete this question by entering your answers in the tabs below.
Required 1A Required 18 Required 1C
What is the lowest acceptable transfer price from the perspective of the selling division?
Lowest acceptable transfer price
Required 1A
Required 18 >
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Step 1: Definition of transfer pricing:
VIEW Step 2: Requirement 1A- Calculation of lowest acceptable transfer price from the perspective of seller:
VIEW Step 3: Requirement 1B- Calculation of highest acceptable transfer price from the perspective of buyer:
VIEW Step 4: Requirement 1C- Range of acceptable transfer price-
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