Assume that a transfer price of $162 has been established and that 37,500 units of materials are transferred, with no reduction in the Components Division's current sales. a. How much would XPort Industries' total income from operations increase? b. How much would the Instrument Division's income from operations increase? c. How much would the Components Division's income from operations increase? d. Any transfer price will cause the total income of the company to ,as long as the supplier division capacity is toward making materials for products that are ultimately sold to the outside.
Assume that a transfer price of $162 has been established and that 37,500 units of materials are transferred, with no reduction in the Components Division's current sales. a. How much would XPort Industries' total income from operations increase? b. How much would the Instrument Division's income from operations increase? c. How much would the Components Division's income from operations increase? d. Any transfer price will cause the total income of the company to ,as long as the supplier division capacity is toward making materials for products that are ultimately sold to the outside.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Decision on transfer pricing
Transcribed Image Text:Decision on transfer pricing
Materials used by the Instrument Division of XPort Industries are currently purchased from outside suppliers at a cost of $171 per unit. However, the same materials are available from the Components Division. The Components
Division has unused capacity and can produce the materials needed by the Instrument Division at a variable cost of $142 per unit.
Assume that a transfer price of $162 has been established and that 37,500 units of materials are transferred, with no reduction in the Components Division's current sales.
a. How much would XPort Industries' total income from operations increase?
$4
b. How much would the Instrument Division's income from operations increase?
$4
c. How much would the Components Division's income from operations increase?
$4
d. Any transfer price will cause the total income of the company to
, as long as the supplier division capacity is
toward making materials for products that are ultimately sold to the
outside.
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