Collyer Products, Inc., has a Valve Division that manufactures and sells a standard valve: Capacity in units Sales price to outside customers Fixed Cost per unit (based on capacity) Variable cost per unit 50,000 $30 $16 $9 The company has a Pump Division that could use this valve in one of its pumps. The Pump

FINANCIAL ACCOUNTING
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Chapter1: Financial Statements And Business Decisions
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Q- 7:
Collyer Products, Inc., has a Valve Division that manufactures and sells a standard valve:
Capacity in units
Sales price to outside customers
Fixed Cost per unit (based on capacity)
Variable cost per unit
50,000
$30
$16
$9
The company has a Pump Division that could use this valve in 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 enough 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?
2. Assume that the Valve Division is selling all of the valves it can produce to outside customers.
What is the acceptable range, if any, for the transfer price between the two divisions?
Transcribed Image Text:Q- 7: Collyer Products, Inc., has a Valve Division that manufactures and sells a standard valve: Capacity in units Sales price to outside customers Fixed Cost per unit (based on capacity) Variable cost per unit 50,000 $30 $16 $9 The company has a Pump Division that could use this valve in 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 enough 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? 2. Assume that the Valve Division is selling all of the valves it can produce to outside customers. What is the acceptable range, if any, for the transfer price between the two divisions?
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