9 9 Avery Company has two divisions, Polk and Bishop. Polk produces an item that Bishop could use in its production. Bishop currently is purchasing 24,000 units from an outside supplier for $14.00 per unit. Polk is currently operating at less than its full capacity of 620,000 units and has variable costs of $6.00 per unit. The full cost to manufacture the unit is $10. Polk currently sells 460,000 units at a selling price of $19 per unit. Required: a. What will be the effect on Avery Company's operating profit If the transfer is made internally? b. What is the minimum transfer price from Polk's perspective? c. What is the maximum transfer price from Bishop's perspective? Complete this question by entering your answers in the tabs below. 。 Required A Required B Required C What will be the effect on Avery Company's operating profit if the transfer is made internally?

9 9 Avery Company has two divisions, Polk and Bishop. Polk produces an item that Bishop could use in its production. Bishop currently is purchasing 24,000 units from an outside supplier for $14.00 per unit. Polk is currently operating at less than its full capacity of 620,000 units and has variable costs of $6.00 per unit. The full cost to manufacture the unit is $10. Polk currently sells 460,000 units at a selling price of $19 per unit. Required: a. What will be the effect on Avery Company's operating profit If the transfer is made internally? b. What is the minimum transfer price from Polk's perspective? c. What is the maximum transfer price from Bishop's perspective? Complete this question by entering your answers in the tabs below. 。 Required A Required B Required C What will be the effect on Avery Company's operating profit if the transfer is made internally?

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter20: Inventory Management: Economic Order Quantity, Jit, And The Theory Of Constraints

Section: Chapter Questions

Problem 7E: Ottis, Inc., uses 640,000 plastic housing units each year in its production of paper shredders. The...

See similar textbooks

Similar questions

Oat Treats manufactures various types of cereal bars featuring oats. Simmons Cereal Company has approached Oat Treats with a proposal to sell the company its top selling oat cereal bar at a price of $27,500 for 20,000 bars. The costs shown are associated with production of 20,000 oat bars currently. The manufacturing overhead consists of $3,000 of variable costs with the balance being allocated to fixed costs. Should Oat Treats make or buy the oat bars?
Dimitri Designs has capacity to produce 30,000 desk chairs per year and is currently selling all 30,000 for $240 each. Country Enterprises has approached Dimitri to buy 800 chairs for $210 each. Dimitris normal variable cost is $165 per chair, including $50 per unit in direct labor per chair. Dimitri can produce the special order on an overtime shift, which means that direct labor would be paid overtime at 150% of the normal pay rate. The annual fixed costs will be unaffected by the special order and the contract will not disrupt any of Dimitris other operations. What will be the impact on profits of accepting the order?
Avery Company has two divisions, Polk and Bishop. Polk produces an item that Bishop could use in its production. Bishop currently is purchasing 26,000 units from an outside supplier for $16 per unit. Polk is currently operating at less than its fll capacity of 580,000 units and has variable costs of $8 per unit. The full cost to manufacture the unit is $11. Polk currently sells 460,000 units at a selling price of $19 per unit. a. What will be the effect on Avery Company's operating profit if the transfer is made internally? b. What is the minimum transfer price from Polk's perspective? Minimum Transfer Price
Washington Company has two divisions, Jefferson and Adams. Jefferson produces an item that Adams could use in its production. Adams currently is purchasing 100,000 units from an outside supplier for $78.40 per unit. Jefferson is currently operating at full capacity of 900,000 units and has variable costs of $46.40 per unit. The full cost to manufacture the unit is $59.20. Jefferson currently sells 900,000 units at a selling price of $86.40 per unit. Required: 1. What will be the effect on Washington Company's operating profit if the transfer is made internally? 2. What will be the change in profits for Jefferson if the transfer price is $67.20 per unit? 3. What will be the change in profits for Adams if the transfer price is $67.20 per unit?
Swan Company has two divisions, Hill and Paradise. Hill produces a unit that Paradise could use in its production. Paradise currently is purchasing 5,600 units from an outside supPplier for $62. Hill is operating at less than full capacity and has variable costs of $36.80 per unit. The full cost to manufacture the unit is $49.40. Hill currently sells 450,600 units at a selling price of $67.60. How much will Paradise save by not purchasing from outside if a transfer price of $48 is agreed upon? Multiple Choice $78,400 $56,600 $7,600 more cost $28,600
SEved Spring Corp. has two divisions, Daffodil and Tulip. Daffodil produces a gadget that Tulip could use in its production. Tulip currently purchases 170,000 gadgets for $13.90 on the open market. Daffodil's variable costs are $7 per widget while the full cost is $11.45. Daffodil sells gadgets for $14.40 each. If Daffodil is operating at capacity, what would be the minimum transfer price Daffodil would accept for an internal transfer? Multinic Choice $7.40 $1.45 $13.90 $14.40
c. What is the maximum transfer price? (Round your answer to 2 decimal places.) Maximum Transfer Price
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 505,000 components at a variable cost of $5.50 and a full cost of $9.00. Iron Products has outside sales of 460,000 components at a price of $13.50 per unit. Austin currently purchases 55,000 units from an outside supplier at a price of $11.50 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 55,000 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 c. What is the maximum transfer price? (Round your answer to 2 decimal places.) Maximum Transfer Price 47
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 530,000 components at a variable cost of $6.00 and a full cost of $9.00. Iron Products has outside sales of 485,000 components at a price of $12.50 per unit. Austin currently purchases 55,000 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 55,000 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.) c. What is the maximum transfer price? (Round your answer to 2 decimal places.)
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…
Fame Company manufactures engines. Fame produces all the parts necessary for its engines, except for one electronic component, which is purchased from two local suppliers: Hydra International and Parable Company. Both suppliers are reliable and rarely deliver late. Hydra sells the component for $12.00 per unit, while Parable sells the same component for $10.00. Fame purchases 80% of its components from Parable because of the lower price it offers. The total annual demand is 95,000 units. I. Activity Data Activity Cost Inspecting components (sampling only) $ 210,000 Reworking products (due to failed component) $2,454,000 Warranty work (due to failed component) $1,923,000 II. Supplier Data Hydra Parable International Company Unit purchase price $12.00 $10.00 Units purchased 19,000 76,000 Sampling hours 60 2,600 Rework hours 150 3,800 Warranty hours 550 7,000 Calculate…
This Little Light, Inc. is a manufacturer of lamps. Little Light makes 40,000 units per year of a part that it uses in the manufacturing of each lamp. At this activity level, the unit production cost is $7.17. Of this amount, $4.71 is for unit variable production costs. The remainder is for fixed production costs and equals $98,400. Little Light has identified an outsider supplier who sells the needed part. If the part is purchased from the outsider supplier, 15% of Little Light's fixed manufacturing costs will be eliminated. Assume Little Light will need 50,000 of the part next year and that the freed up capacity can be rented out to another company for $31,740. At what purchase price will Little Light be economically indifferent between making the part and buying the part? $4.70 $4.86 $5.97 $5.50 $5.64