A company has two divisions, East and West. The East Division has provided the following information regarding the one product that it manufactures and sells on the outside market: Selling price per unit (on the outside market) Variable cost per unit Fixed costs per unit (based on capacity) 2$ 60 43 Capacity in units 20,000 The West Division could use the product produced by East as a component part in the manufacture of 4,000 units of its own newly-designed product. West has received a quote of $59 from an outside supplier for a component part that is comparable to the one that East makes. Also assume that the company's divisional managers are evaluated based on their division's profits and that the East Division is currently selling 17,000 units on the outside market. If the managers of the two divisions do not agree on a transfer price and the West Division purchases 4,000 component parts from an outside supplier, what would be the effect on the company's overall profits?

A company has two divisions, East and West. The East Division has provided the following information regarding the one product that it manufactures and sells on the outside market: Selling price per unit (on the outside market) Variable cost per unit Fixed costs per unit (based on capacity) 2$ 60 43 Capacity in units 20,000 The West Division could use the product produced by East as a component part in the manufacture of 4,000 units of its own newly-designed product. West has received a quote of $59 from an outside supplier for a component part that is comparable to the one that East makes. Also assume that the company's divisional managers are evaluated based on their division's profits and that the East Division is currently selling 17,000 units on the outside market. If the managers of the two divisions do not agree on a transfer price and the West Division purchases 4,000 component parts from an outside supplier, what would be the effect on the company's overall profits?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Similar questions

Anstell Corporation operates a Manufacturing Division and a Marketing Division. Both divisions are evaluated as profit centers. Marketing buys products from Manufacturing and packages them for sale. Manufacturing sells many components to third parties in addition to Marketing. Selected data from the two operations follow: Capacity (units) Sales price* Variable costs + Fixed costs Manufacturing 250,000 $ 280 $ 112 $ 100,000 a. Transfer price b. Transfer price Marketing 125,000 $910 For Manufacturing, this is the price to third parties. t For Marketing, this does not include the transfer price paid to Manufacturing. per unit per unit $ 336 $ 720,000 Required: a. Current output in Manufacturing is 150,000 units. Marketing requests an additional 25,000 units to produce a special order. What transfer price would you recommend? b. Suppose Manufacturing is operating at full capacity. What transfer price would you recommend?
on july 1 , 2023 coronado greenhouse purchased a new delivery truck for $153000. she paid $20000 cash and signed promissory note for the remainder. coronado estimates that the delivery truck will have a five year useful life or 350000 kilometres and a residual value of $ 13000 . Coronado green house has a december 31 year end. Coronado drove the truck 28000 km in 2023, 79000 kn in 2024, 82000 in 2025, 77000 in 2026 and 85000 in 2027. prepare a depreciation schedule for the asset under each of the following method straight line method , double diminishing balance and units of production method.
Red Oil Corp. has two divisions, Refining and Production. The company's primary product is Clean Oil. Each division's costs are provided below: Refining: Variable costs per litre of oil $30 Fixed costs per litre of oil $24 Production: Variable costs per litre of oil $6 Fixed costs per litre of oil $4 The Production Division is able to sell the oil to other areas for $24 per litre. The Refining Division has been operating at a capacity of 80,000 litres a day, using oil from the Production Division and oil purchased from other suppliers. The Refining Division usually purchases 50,000 litres of oil, on average, from the Production Division and 30,000 litres, on average, from other suppliers at $40/litre. What is the Production Division's operating income per 200 litres of oil reported under the 175% of variable costs method? Select one: a. $1,500 b. $100 c. $880 d. $(100) e. $1,200
Division A produces a product that it sells to the outside market. It has compiled the following: Variable manufacturing cost per unit $8 Variable selling costs per unit $3 Total fixed manufacturing costs $164000 Total fixed selling costs $30000 Per unit selling price to outside buyers $56 Capacity in units per year 30000 Division B of the same company is currently buying an identical product from an outside provider for $54 per unit. It wishes to purchase 5200 units per year from Division A. Division A is currently selling 24800 units of the product per year. If the internal transfer is made, Division A will not incur any selling costs. What would be the maximum transfer price per unit that Division B would be willing to accept? $56 $9 $54 $8
Caribann is a company with the potential to produce 100,000 units of its sole product annually. Caribann's interplay of costs and production capacity prompts an analysis that will guide it in navigating the balance between revenue generation and cost management. The following information is available: Selling price - -----------------------------------------------------$42 per unit Variable manufacturing costs -----------------------------------$24 per unit Fixed manufacturing costs---------------------------------------$360,000 annually Fixed marketing and administrative costs ---------------------$240,000 annually Variable marketing and administrative costs -----------------$4 per unit Required: In attempting to achieve better results in the marketplace, management has been looking at changing the reward system for marketing, distribution and sales personnel. This would result in an increase in variable marketing and administrative costs by $2 per unit, and would reduce fixed…
Pharoah International Corporation has two divisions, beta and gamma. Beta produces an electronic component that sells for $75 per unit, with the following costs based on its capacity of 217,600 units: Direct materials Direct labour $23 18 Variable overhead 4 Fixed overhead 11 Beta is operating at 79% of normal capacity and gamma is purchasing 17,000 units of the same component from an outside supplier for $69 per unit. (a) Your Answer Correct Answer (Used) Calculate the benefit, if any, to beta in selling to gamma 17,000 units at the outside supplier's price. Benefit $ 24 per unit Calculate the lowest price beta would be willing to accept. Lowest price $
Hitachi Philippines has two divisions, A and B. Division A makes a component for air conditioning units which it can only sell to Division B. It has no other, outlets for sales. Current information relating to Division A is as follows: Marginal cost per unit P100 Transfer price of the component 165 Specific fixed costs of Division A per year 10,000 Total production and sales of the 2,200 units component each year 2,200 units Carrier company has offered to sell the component to Division B for P140 per unit. If Divison B accepts this offer, Division A will be shut. If Division B accepts Carrier Company’s offer, what will be the impact on profits per year for the group as a whole?
XYZ Company has two divisions, X and Y. X makes product X1 and Y makes product Y+. Every unit of product Y+ requires one unit of product X1 as a component. Y purchases most of its X1 requirement from X although sometimes it makes purchases from outside suppliers. Relevant details of products X1 and Y+ are tabulated as follows: Product X1 Product Y+ Established selling price $30 $50 Variable Cost Per Unit - Mat 8 5 Transfer price 30 Labor 5 3 Overhead 2 2 Total Variable Cost 15 40 Fixed Costs 500,000 225,000 Annual Outside Demand 100,000 25,000 Plant Capacity 130,000 30,000 Investment in Divisions: (X) $ 6,625,000 (Y) $ 1,250,000 Division Y is currently achieving an ROI below target. It’s manager blames this on the high transfer price of product X1. The manager of Division X claims that the current transfer price ($30) is appropriate since ‘it is determined by the market’. The manager of division…
XYZ Company has two divisions, X and Y. X makes product X1 and Y makes product Y+. Every unit of product Y+ requires one unit of product X1 as a component. Y purchases most of its X1 requirement from X although sometimes it makes purchases from outside suppliers. Relevant details of products X1 and Y+ are tabulated as follows: Product X1 Product Y+ Established selling price $30 $50 Variable Cost Per Unit - Mat 8 5 Transfer price 30 Labor 5 3 Overhead 2 2 Total Variable Cost 15 40 Fixed Costs 500,000 225,000 Annual Outside Demand 100,000 25,000 Plant Capacity 130,000 30,000 Investment in Divisions: (X) $ 6,625,000 (Y) $ 1,250,000 Division Y is currently achieving an ROI below target. It’s manager blames this on the high transfer price of product X1. The manager of Division X claims that the current transfer price ($30) is appropriate since ‘it is determined by the market’. The manager of division…
SAMCIS Company produces three products (X, Y, and Z) in a joint process costing P100,000. The products can be sold as they leave the process, or they can be processed further and sold. The cost accountant has provided you with the following information: Separable Further Processing Costs P60,000 50,000 90,000 Sales Price at Split-Off Sales Price After Product Unit Volume Further Processing 3,000 4,000 8,000 Assume that all processing costs are variable costs. X Y P25 30 P10 15 20 35 Required: Which products should SAMCIS sell at split-off, and which products should be processed further?
Tuttle Motorcycles Inc. manufactures and sells high-priced motorcycles. The Engine Division produces and sells engines to other motorcycle companies and internally to the Production Division. It has been decided that the Engine Division will sell 20,000 units to the Production Division at $1,050 a unit. The Engine Division, currently operating at capacity, has a unit sales price of $2,550 and unit variable costs and fixed costs of $1,050 and $750, respectively. The Production Division is currently paying $2,400 per unit to an outside supplier. What is the minimum transfer price that the Engine Division should accept? (Round your answer to a whole number if needed. Just put the number in the blank. No $ sign.) 2,460
Division A, which is operating at capacity, produces a component that currently sells in a competitive market for $42 per unit. At the current level of production, the fixed cost of producing this component is $11 per unit and the variable cost is $11 per unit. Division B would like to purchase this component from Division A. The price that Division A should charge Division B for this component is: Multiple Choice $11 per unit. $22 per unit. $36 per unit. $42 per unit. $53 per unit.