Assume a company has two divisions, Division A and Division B. Division A has provided the following information regarding the one product that itmanufactures and sells on the outside market:Selling price per unit (on the outside market).Variable cost per unit$ 60$ 44Fixed costs per unit (based on capacity)Capacity in units$ 420,000Division B could use Division A's product as a component part in the manufacture of 4,000 units of its own newly-designed product. Division B hasreceived a quote of $58 from an outside supplier for a component part that is comparable to the one that Division A makes.If the company's divisional managers are evaluated based their division's profits and Division A is currently selling 18,000 units on the outside market,what is Division A's lowest acceptable transfer price if it were to sell 4,000 units to Division B?

Step 1:The lowest acceptable transfer price will equal the sum of the variable cost per unit and the…

Answered: Assume a company has two divisions,…

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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Required information [The following information applies to the questions displayed below.] Henna Company produces and sells two products, Carvings and Mementos. It manufactures these products in separate factories and markets them through different channels. They have no shared costs. This year, the company sold 53,000 units of each product. Income statements for each product follow. Sales Variable costs Contribution margin Fixed costs Income 3. Assume that the company expects sales of each product to increase to 67,000 units next year with no change in unit selling price. Prepare a contribution margin income statement for the next year (as shown above with columns for each of the two products). (Round "per unit" answers to 2 decimal places.) Sales Variable cost Contribution margin Fixed costs Income (loss) Mementos $ 863,900 Carvings $ 863,900 604,730 259, 170 116,170 86,390 777,510 634,510 $ 143,000 $ 143,000 HENNA COMPANY Contribution Margin Income Statement Carvings Units 67,000…
The following information is for Bullwinkle Industries Inc.: Line Item Description East West Sales volume (units): Product Alpha 45,000 38,000 Product Omega 60,000 50,000 Sales price: Product Alpha $500 $600 Product Omega $250 $225 Variable cost per unit: Product Alpha $275 $275 Product Omega $140 $140 a. Determine the contribution margin for the East Region and West Region.East Region: fill in the blank 1 of 2$West Region: fill in the blank 2 of 2$ b. Determine the contribution margin ratio for the East Region and West Region. Round the contribution margin ratio to one-tenth of a percent.East Region: fill in the blank 1 of 2%West Region: fill in the blank 2 of 2%
Division A makes a part with the following characteristics: Production capacity in units 15,000 units Selling price to outside customers $30 Variable cost per unit $20 Total fixed costs $60,000 Division B, another division of the same company, would like to purchase 5,000 units of the part each period from Division A. Suppose that Division A has ample idle capacity to handle all of Division B's needs without any increase in fixed costs and without cutting into sales to outside customers. What would be the minimum acceptable price that Division A would accept to transfer 5,000 units of the part to Division B? $30 $20 $10 None of the above 2. Jack Sparrow, Inc. produces and sells 20,000 units of Product X each month. The selling price of Product X is $30 per unit, and variable expenses are $21 per unit. A study has been made concerning whether Product X should be discontinued. The study shows that $50,000 of the $250,000 in fixed expenses charged…
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A manufacturing company decides which of three mutually exclusive products to make in its factory on the basis of maximising the company's throughput accounting ratio. Current data for the three products is shown in the following table: Product X Product Y Product Z $20 Selling price per unit $60 $40 Direct material cost per unit $40 $10 $16 Machine hours per unit 10 20 2.5 Total factory costs (excluding direct materials) are $150,000. The company cannot make enough of any of the products to satisfy external demand entirely as machine hours are restricted. Which of the following actions would improve the company's existing throughput accounting ratio? Increase the selling price of product Z by 10% Increase the selling price of product Y by 10% Reduce the material cost of product Z by 5% O Reduce the material cost of product Y by 5%
Division X of Bella Corporation sells Part A to other companies for $87.20 per unit. According to the company's accounting system, the costs to Division X to make a unit of Part A are: O $87.20 per unit O $62.60 per unit O $58.10 per unit O $79.95 per unit O None of the above Direct materials Direct labor $5.80 Variable Division Y of Bella Corporation uses a part much like Part A in one of its products. Division Y can buy this part from an outside supplier for $79.95 per unit. However, Division Y could use Part A instead of the part it purchases from the outside supplier. What is the most Division Y would be willing to pay the Division X for Part A? Question 21 $42.70 manufacturing $9.60 overhead Fixed manufacturing $4.50 overhead
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 125,000 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? c. Suppose Manufacturing is operating at 230,000 units. What transfer…
Division A of SLG Company produces a part it sells to other companies. Sales and cost data for the part are as follows: Capacity in units 60,000 units Selling price per unit O $27 per unit O $39 per unit O $36 per unit O $41 per unit Variable cost per unit O None of the above. Fixed cost per unit at capacity Division B, another division of SLG Company, would like to buy this part from Division A. Division B is currently purchasing the part from an outside source at $38 per unit. If Division A sells to Division B, then $1 in Division A's variable costs can be avoided. Assume Division A has enough idle capacity to handle all of Division B's needs without any increase in fixed costs and without interfering with outside sales. According to the transfer pricing guidelines, what is the lowest acceptable transfer price from the perspective of Division A? $40 per unit $28 per unit $9 per unit

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