Calculate minimum transfer price.E9.29 (LO 6) The national division of Nero International Company is buying 20,000 widgets from anoutside supplier at $75 per unit. Nero International's overseas division, which is producing and sellingwidgets at full capacity (25,000 units), has the following sales and cost structure:Sales price per unit$90Variable cost per unit70Fixed cost (at capacity) per unit 20Instructionsa. Determine the minimum transfer price if the national division buys 5,000 widgets from the overseasdivision.b. Determine the effect on overall company profits if the overseas division meets the outside supplier'sprice and sells the 5,000 widgets to the national division.

A company may calculate the minimum acceptable transfer price as equal to the variable costs or…

a. Determine the minimum transfer price if the national division buys 5,000 widgets from the overseas division. b. Determine the effect on overall company profits if the overseas division meets the outside supplier's price and sells the 5,000 widgets to the national division.

a. Determine the minimum transfer price if the national division buys 5,000 widgets from the overseas division. b. Determine the effect on overall company profits if the overseas division meets the outside supplier's price and sells the 5,000 widgets to the national division.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Suppose the manager of division A has the option of (a) cutting the external price to $156, with the certainty that sales will rise to 2,000 units, or (b) maintaining the external price of $160 for the 1,200 units and transferring the 800 units to division B at a price that would produce the same operating income for division A. What transfer price would produce the same operating income for division A? Is that price consistent with that recommended by the general guideline in the chapter so that the resulting decision would be desirable for the company as a whole?
Company E has two divisions, Division A and Division B. Division A is currently buying Component X from an external seller for $12. Division B produces Component X and has excess capacity. Using the following data, what would the transfer price per unit if Division A purchased Component X from Division B at the full-cost plus assuming 19% transfer price? • Variable cost per unit $7.02 • Fixed cost per unit 1.42 • Division B sales price of Component X 14.50
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Transfer pricing, general guideline, goal congruence. (CMA, adapted). Quest Motors, Inc., operates as a decentralized multidivision company. The Vivo division of Quest Motors purchases most of its airbags from the airbag division. The airbag division’s incremental cost for manufacturing the airbags is $90 per unit. The airbag division is currently working at80% of capacity. The current market price of the airbags is $125 per unit.1. Using the general guideline presented in the chapter, what is the minimum price at which the airbag division would sellairbags to the Vivo division?2. Suppose that Quest Motors requires that whenever divisions with unused capacity sell products internally, they must doso at the incremental cost. Evaluate this transfer-pricing policy using the criteria of goal congruence, valuating divisionperformance, motivating management effort, and preserving division autonomy.3. If the two divisions were to negotiate a transfer price, what is the range of possible…
Question-->Suppose Going Places has set a transfer price policy of variable cost plus 60 percent for all related-party transactions. Determine how much each party will benefit from the internal transfer? Info Given-->Going Places, Inc., manufactures a variety of luggage for airline passengers. The company has several luggage production divisions, including the Suitable Cases Division, as well as a wholly owned subsidiary, It's Mine, that manufactures small identification tags used on luggage. Each piece of luggage that Suitable Cases produces has two identification tags for which it previously paid the going market price of $2 each. Financial information for Suitable Cases and It's Mine follows: Sales Suitable Cases It's Mine 4,500 bags × $150.00 each $675,000 200,000 tags × $2.00 each $400,000 Variable expenses 4,500 bags × $85.00 each 382,500 200,000 tags × $0.50 each 100,000 It's Mine has a production capacity…
APPLY THE CONCEPTS: Determining benefits of negotiated transfer price Assume that Selling Division and Buying Division are both owned by Overall Corporation. Selling Division sells a product that is used by Buying Division and outside customers. Selling Division has 35,000 units of excess capacity. Selling Division currently sells the product for $30 per unit and Buying Division currently buys 35,000 units of the product from an outside source for $30 per unit. Variable costs of the product are $6, of which $1.5 is the cost of selling the product to an outside customer. Using Selling price less avoidable costs as the minimum price, fill in the following formula for the desired transfer price: $ 28.5 ✔ 6 ✔ transfer price < $ 30 ✓. transfer price < $ 30 ✓. Using Variable costs as the minimum price, fill in the following formula for the desired transfer price: $ Assume there are no avoidable costs with an internal sale (variable costs equal $6) and that Buying Division buys 35,000 units…
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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?
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Suppose that division R can sell any quantity of Ranbax in a perfectly competitive market for $0.33 a pound. To maximize Letang’s income, how many pounds of Ranbax should division R transfer to divisions S and T, and how much should it sell in the external market?
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