Denver Company is a Manufacturing company that currently operates with two divisions: Dog and Den. The Den division currently manufactures a product that the Dog division purchases from an outside supplier. The Dog division needs 70,000 units each year, and pays the outside supplier $70 per unit. Den division's variable manufacturing cost is $45 per unit and has the capacity to manufacture 95,000 units per year. Currently Den has only produces and sells 60,000 units per year at a selling price of S86 per unit Required A) Calculate the minimum and maximum transfer prices. B) Assume that the managers of both divisions agree on a transfer price of $68 per unit Calculate the incremental income of each division if a transfer of 70,000 units is done.
Denver Company is a Manufacturing company that currently operates with two divisions: Dog and Den. The Den division currently manufactures a product that the Dog division purchases from an outside supplier. The Dog division needs 70,000 units each year, and pays the outside supplier $70 per unit. Den division's variable manufacturing cost is $45 per unit and has the capacity to manufacture 95,000 units per year. Currently Den has only produces and sells 60,000 units per year at a selling price of S86 per unit Required A) Calculate the minimum and maximum transfer prices. B) Assume that the managers of both divisions agree on a transfer price of $68 per unit Calculate the incremental income of each division if a transfer of 70,000 units is done.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Denver Company is a Manufacturing company that currently operates with two divisions: Dog and Den. The Den
division currently manufactures a product that the Dog division purchases from an outside supplier. The Dog
division needs 70,000 units each year, and pays the outside supplier $70 per unit. Den division's variable
manufacturing cost is $45 per unit and has the capacity to manufacture 95,000 units per year. Currently Den has only
produces and sells 60,000 units per year at a selling price of $86 per unit.
Required
A) Calculate the minimum and maximum transfer prices.
B) Assume that the managers of both divisions agree on a transfer price of S68 per unit. Calculate the incremental
income of each division if a transfer of 70,000 units is done.
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