Collyer Ltd has a valve division that manufactures and sells a standard valve as follows: Capacity in units Selling price to outside customers on intermediate market Variable costs per unit Fixed costs per unit (based on capacity) 100,000 £30 £16 £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 10,000 valves per year from an overseas supplier at a cost of £29 per valve. Required: 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 division? (5 marks) 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? (5 marks) 3. Assume that the valve Division is selling all that it can produce to outside customers on the intermediate market. Also assume that £3 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? (5 marks) 4. The Pump division proposes to buy the valves from the Valve division at £25 each from the Valve division. Evaluate the appropriateness of the proposal considering your answers above (5 marks)
Collyer Ltd has a valve division that manufactures and sells a standard valve as follows: Capacity in units Selling price to outside customers on intermediate market Variable costs per unit Fixed costs per unit (based on capacity) 100,000 £30 £16 £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 10,000 valves per year from an overseas supplier at a cost of £29 per valve. Required: 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 division? (5 marks) 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? (5 marks) 3. Assume that the valve Division is selling all that it can produce to outside customers on the intermediate market. Also assume that £3 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? (5 marks) 4. The Pump division proposes to buy the valves from the Valve division at £25 each from the Valve division. Evaluate the appropriateness of the proposal considering your answers above (5 marks)
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Transcribed Image Text:Collyer Ltd has a valve division that manufactures and sells a standard valve as follows:
Capacity in units
Selling price to outside customers on intermediate market
Variable costs per unit
Fixed costs per unit (based on capacity)
100,000
£30
£16
£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 10,000 valves per year from an overseas
supplier at a cost of £29 per valve.
Required:
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 division? (5 marks)
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? (5 marks)
3. Assume that the valve Division is selling all that it can produce to outside customers
on the intermediate market. Also assume that £3 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? (5 marks)
4. The Pump division proposes to buy the valves from the Valve division at £25 each
from the Valve division. Evaluate the appropriateness of the proposal considering
your answers above (5 marks)
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