Assume that the Engine Division would not incur any variable selling costs on units that are transferred internally. What is the minimum of the transfer price range for a transfer between Car Division and Engine Division? The Car Division of Vehicle Co. uses 5,000 carburetors per month in its production ofautomotive engines. Car Division currently purchases all the carburetors it needs from anexternal supplier at an average cost of P100. The Engine Division of Vehicle Co. manufacturesan identical type of carburetor that the Car Division requires. The Engine Division is currentlyoperating at its capacity of 15,000 units per month and sells all its output to a foreign carmanufacturer at P106 per unit. Based on 15,000 units, its cost structure is as follows:Variable selling costsVariable manufacturing costsAll fixed costsP107010

Solution: As engine division is operating at capacity and it will not incur variable selling costs…

Assume that the Engine Division would not incur any variable selling costs on units that are transferred internally. What is the minimum of the transfer price range for a transfer between Car Division and Engine Division?

Assume that the Engine Division would not incur any variable selling costs on units that are transferred internally. What is the minimum of the transfer price range for a transfer between Car Division and Engine 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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Question

The Car Division of Vehicle Co. uses 5,000 carburetors per month in its production of
automotive engines. Car Division currently purchases all the carburetors it needs from an
external supplier at an average cost of P100. The Engine Division of Vehicle Co. manufactures
an identical type of carburetor that the Car Division requires. The Engine Division is currently
operating at its capacity of 15,000 units per month and sells all its output to a foreign car
manufacturer at P106 per unit. Based on 15,000 units, its cost structure is as follows:
Variable selling costs
Variable manufacturing costs
All fixed costs
P10
70
10

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