Collyer Products Inc. has a Valve Division that manufactures and sells a standard valve as follows: Capacity in units Selling price to outside customers on the intermediate market Variable costs per unit Fixed costs per unit (based on capacity) 10,000 15 8 5 The company has a Pump Division that could use this valve in the manufacture of one of its pumps. The Pump Division is curren purchasing 10,000 valves per year from an overseas supplier at a cost of $14 per valve. 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? Transfer price 4. Assume the Pump Division needs 20,000 special high-pressure valves per year. The Valve Division's variable costs to manufacture and ship the special valve would be $10 per unit. To produce these special valves, the Valve Division would have to reduce its production and sales of regular valves from 100,000 units per year to 70,000 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.) Transfer price
Collyer Products Inc. has a Valve Division that manufactures and sells a standard valve as follows: Capacity in units Selling price to outside customers on the intermediate market Variable costs per unit Fixed costs per unit (based on capacity) 10,000 15 8 5 The company has a Pump Division that could use this valve in the manufacture of one of its pumps. The Pump Division is curren purchasing 10,000 valves per year from an overseas supplier at a cost of $14 per valve. 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? Transfer price 4. Assume the Pump Division needs 20,000 special high-pressure valves per year. The Valve Division's variable costs to manufacture and ship the special valve would be $10 per unit. To produce these special valves, the Valve Division would have to reduce its production and sales of regular valves from 100,000 units per year to 70,000 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.) Transfer price
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Collyer Products Inc. has a Valve Division that manufactures and sells a standard valve as follows:
Capacity in units
Selling price to outside customers on the intermediate market
Variable costs per unit
Fixed costs per unit (based on capacity)
10,000
15
8
5
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 $14 per valve.
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?
Transfer price
4. Assume the Pump Division needs 20,000 special high-pressure valves per year. The Valve Division's variable costs to manufacture
and ship the special valve would be $10 per unit. To produce these special valves, the Valve Division would have to reduce its
production and sales of regular valves from 100,000 units per year to 70,000 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.)
Transfer price
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