Decision on transfer pricing. Materials used by the InstrumentDivision of Ziegler Inc. are currently purchased from outsidesuppliers at a cost of $359 per unit. However, thesame materialsare available from the Components Division. The ComponentsDivision has unused capacity and can produce the materialsneeded bythe Instrument Division at a variable cost of $298 perunit. Assume that a transfer price of $341 has been establishedand that 34,200 units of materials are transferred, with noreduction in the Components Division's current sales.a. Howmuch would Ziegler Inc.'s total operating income increase?b. How much would the Instrument Division's operating incomeincrease?c. How much would the Components Division's• operating income increase?

Step 1: a) Cost of buying from outside suppliers = Number of units * cost per unit = 34,200 * $359…

Answered: Decision on transfer pricing. Materials…

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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6. Materials used by the Instrument Division of XPort Industries are currently purchased from outside suppliers at a cost of $220 per unit. However, the same materials are available from the Components Division. The Components Division has unused capacity and can produce the materials needed by the Instrument Division at a variable cost of $165 per unit. a. If a transfer price of $190 per unit is established and 60,000 units of materials are transferred, with no reduction in the Components Division's current sales, how much would XPort Industries' total income from operations increase? b. How much would the Instrument Division's income from operations increase? c. How much would the Components Division's income from operations increase?
Required : i) List the alternatives facing Zee Manufacturing with respect to production of component S6 . ii) List the relevant costs for each alternative if Zee decides to purchase the component from Bryan . Predict whether the operating income will increase or decrease and better alternatives . b) Refer to the information for Zee Manufacturing above . Assume that 75 % of Zee Manufacturing's fixed overhead for component S6 would be eliminated if that component were no longer produced . Required : If Zee decides to purchase the component from Bryan , predict whether the operating income will increase or decrease and propose the better alternatives .
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Decision on transfer pricing Materials used by the Instrument Division of Ziegler Inc. are currently purchased from outside suppliers at a cost of $447 per unit. However, the same materials are available from the Components Division. The Components Division has unused capacity and can produce the materials needed by the Instrument Division at a variable cost of $371 per unit. Assume that a transfer price of $425 has been established and that 26,500 units of materials are transferred, with no reduction in the Components Division's current sales. a. How much would Ziegler Inc.'s total operating income increase? b. How much would the Instrument Division's operating income increase? C. How much would the Components Division's operating income increase? d. Any transfer price will cause the total income of the company to as long as the supplier division capacity is toward making materials for products that are ultimately sold to the outside.
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Textron Inc. has two divisions, Kelly Aerospace, and Cessna Aircraft. The company is attempting to negotiate a transfer price for Kelly's aircraft magnetos sale to Cessna. Given the following data, calculate highest acceptable transfer price. Kelly Aerospace Kelly annual production capacity 43,500 magnetos Kelly's annual sales to outside customers 42,900 magnetos Variable cost per magneto $93.00 Fixed cost per month $320,000 Kelly's selling price to outside customers $110.00 per magneto Cessna $110.00 Current purchase price from other supplier Annual usage per magneto 3,500 magneto Textron Inc. has two divisions, Kelly Aerospace, and Cessna Aircraft. The company is attempting to negotiate a transfer price for Kelly's aircraft magnetos sale to Cessna. Given the following data, calculate lowest acceptable transfer price; round to the nearest penny. Kelly Aerospace Kelly annual production capacity 43,500 magnetos Kelly's annual sales to outside customers 41,000 magnetos Variable cost per…
Find minimum, maximum and appropriate transfer price

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