ABC Unicycle makes unicycles and has two divisions. Each division is evaluated as a profit center. The Wheel division, located in Nambia, produces unicycle wheels and can choose to sell wheels on either the open market at $30 per wheel, or sell them to the Assembly division. The Assembly division, located in Elbonia, assembles unicycles and can choose to either buy wheels from the Wheel division or purchase wheels on the open market. Cost per unit Direct Labour. Variable Materials Variable Overhead Costs Fixed Overhead Costs* Wheel Division $2.00 3.00 4.00 5.00 Assembly Division $6.00 7.00 8.00 9.00 Other information Maximum capacity Current production volume (* Fixed overhead costs are based on current production volumes) Required: A. What is the likely range of transfer prices between the Wheel Division and Assembly Division for an additional wheel? 2,000 1,800 3,000 2,600 B. What is the likely range of transfer prices between the Wheel Division and Assembly Division for 400 additional wheels (hint: it is not the answer in part A x 400)? C. Assume that in future years that the Wheel Division will only sell wheels to the Assembly Division and no longer sell any wheels on the open market. Should the Wheel Division continue to be assessed as a profit centre? Explain your response.
ABC Unicycle makes unicycles and has two divisions. Each division is evaluated as a profit center. The Wheel division, located in Nambia, produces unicycle wheels and can choose to sell wheels on either the open market at $30 per wheel, or sell them to the Assembly division. The Assembly division, located in Elbonia, assembles unicycles and can choose to either buy wheels from the Wheel division or purchase wheels on the open market. Cost per unit Direct Labour. Variable Materials Variable Overhead Costs Fixed Overhead Costs* Wheel Division $2.00 3.00 4.00 5.00 Assembly Division $6.00 7.00 8.00 9.00 Other information Maximum capacity Current production volume (* Fixed overhead costs are based on current production volumes) Required: A. What is the likely range of transfer prices between the Wheel Division and Assembly Division for an additional wheel? 2,000 1,800 3,000 2,600 B. What is the likely range of transfer prices between the Wheel Division and Assembly Division for 400 additional wheels (hint: it is not the answer in part A x 400)? C. Assume that in future years that the Wheel Division will only sell wheels to the Assembly Division and no longer sell any wheels on the open market. Should the Wheel Division continue to be assessed as a profit centre? Explain your response.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Do not give answer in image
Transcribed Image Text:ABC Unicycle makes unicycles and has two divisions. Each division is evaluated as a profit center.
The Wheel division, located in Nambia, produces unicycle wheels and can choose to sell wheels on either the
open market at $30 per wheel, or sell them to the Assembly division.
The Assembly division, located in Elbonia, assembles unicycles and can choose to either buy wheels from the
Wheel division or purchase wheels on the open market.
Cost per unit
Direct Labour.
Variable Materials
Variable Overhead Costs
Fixed Overhead Costs*
Other information
Maximum capacity
Current production volume
Wheel
Division
$2.00
3.00
4.00
5.00
2,000
1,800
Assembly
Division
$6.00
7.00
8.00
9.00
3,000
2,600
(* Fixed overhead costs are based on current production volumes)
Required:
A. What is the likely range of transfer prices between the Wheel Division and Assembly Division for an
additional wheel?
B. What is the likely range of transfer prices between the Wheel Division and Assembly Division for 400
additional wheels (hint: it is not the answer in part A x 400)?
C. Assume that in future years that the Wheel Division will only sell wheels to the Assembly Division
and no longer sell any wheels on the open market. Should the Wheel Division continue to be assessed
as a profit centre? Explain your response.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 4 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education