Carol Components operates a Production Division and a Packaging Division. Both divisions are evaluated as profit centers. Packaging buys components from Production and assembles them for sale. Production sells many components to third parties in addition to Packaging. Selected data from the two operations follow: Capacity (units) Sales price Variable costsb Production Fixed costs 50,000 25,000 $ 240 $96 $ 3,000,000 a For Production, this is the price to third parties. b For Packaging, this does not include the transfer price paid to Production. Packaging $ 780 $288 $ 1,800,000 Suppose Production is located in Country A with a tax rate of 30 percent and Distribution in Country B with a tax rate of 10 percent. All other facts remain the same. Required: A. Current output in Production is 25,000 units. Packaging requests an additional 5,000 units to produce a special order. What transfer price would you recommend? B. Suppose Production is operating at full capacity. What transfer price would you recommend? C. Suppose Production is operating at 47,500 units. What transfer price would you recommend?

Carol Components operates a Production Division and a Packaging Division. Both divisions are evaluated as profit centers. Packaging buys components from Production and assembles them for sale. Production sells many components to third parties in addition to Packaging. Selected data from the two operations follow: Capacity (units) Sales price Variable costsb Production Fixed costs 50,000 25,000 $ 240 $96 $ 3,000,000 a For Production, this is the price to third parties. b For Packaging, this does not include the transfer price paid to Production. Packaging $ 780 $288 $ 1,800,000 Suppose Production is located in Country A with a tax rate of 30 percent and Distribution in Country B with a tax rate of 10 percent. All other facts remain the same. Required: A. Current output in Production is 25,000 units. Packaging requests an additional 5,000 units to produce a special order. What transfer price would you recommend? B. Suppose Production is operating at full capacity. What transfer price would you recommend? C. Suppose Production is operating at 47,500 units. What transfer price would you recommend?

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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