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?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text: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
$ 240
$96
25,000
Packaging
$780
$ 288
$ 1,800,000
$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.
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?
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