Capacity in units Selling price to outside customers on the intermediate market Variable costs per unit Fixed costs per unit (based on capacity) 200,000 $ 21 $ 12 $ 9 The company has a Pump Division that could use this valve in the manufacture of one of its pumps. The Pump Division is currently purchasing 20,000 valves per year from an overseas supplier at a cost of $20 per valve. 1. Assume that the Valve Division has ample idle capacity to handle all of the Pump Division's needs. What is the acceptable range, any, for the transfer price between the two divisions? Answer is complete but not entirely correct. Transfer $ 12 20 O price 2. Assume that the Valve Division is selling all that it can produce to outside customers on the intermediate market. What is the acceptable range, if any, for the transfer price between the two divisions? X Answer is complete but not entirely correct.
Capacity in units Selling price to outside customers on the intermediate market Variable costs per unit Fixed costs per unit (based on capacity) 200,000 $ 21 $ 12 $ 9 The company has a Pump Division that could use this valve in the manufacture of one of its pumps. The Pump Division is currently purchasing 20,000 valves per year from an overseas supplier at a cost of $20 per valve. 1. Assume that the Valve Division has ample idle capacity to handle all of the Pump Division's needs. What is the acceptable range, any, for the transfer price between the two divisions? Answer is complete but not entirely correct. Transfer $ 12 20 O price 2. Assume that the Valve Division is selling all that it can produce to outside customers on the intermediate market. What is the acceptable range, if any, for the transfer price between the two divisions? X Answer is complete but not entirely correct.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Capacity in units
Selling price to outside customers on the intermediate market
Variable costs per unit
Fixed costs per unit (based on capacity)
200,000
$ 21
$ 12
$ 9
The company has a Pump Division that could use this valve in the manufacture of one of its pumps. The Pump Division is currently
purchasing 20,000 valves per year from an overseas supplier at a cost of $20 per valve.
1. Assume that the Valve Division has ample idle capacity to handle all of the Pump Division's needs. What is the acceptable range, if
any, for the transfer price between the two divisions?
Answer is complete but not entirely correct.
Transfer
price
$ 12
20 V
2. Assume that the Valve Division is selling all that it can produce to outside customers on the intermediate market. What is the
acceptable range, if any, for the transfer price between the two divisions?
O Answer is complete but not entirely correct.
Transfer
$ 21 X
20 X
price
Transcribed Image Text:3. Assume again that the Valve Division is selling all that it can produce to outside customers on the intermediate market. Also assume
that $2 in variable expenses can be avoided on transfers within the company, due to reduced selling costs. What is the acceptable
range, if any, for the transfer price between the two divisions?
Answer is complete but not entirely correct.
Transfer
price
$ 19 V
20 V
4. Assume the Pump Division needs 30,000 special high-pressure valves per year. The Valve Division's variable costs to manufacture
and ship the special valve would be $11 per unit. To produce these special valves, the Valve Division would have to reduce its
production and sales of regular valves from 200,000 units per year to 150,000 units per year. As far as the Valve Division is concerned,
what is the lowest acceptable transfer price? (Round your answer to 2 decimal places.)
Answer is complete and correct.
Transfer
price
$ 26.00 V
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