Division Z of a company produces a component that it currently sells to outside customers for P20 per unit. At
Division Z of a company produces a component that it currently sells to outside customers for P20 per unit. At
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Division Z of a company produces a component that it currently sells to outside customers for P20 per unit. At its current level of production, which is 60% of capacity, Division Z’s fixed cost of producing this component is P5 per unit and its variable cost is P12 per unit. Division Y of the same company would like to purchase this component from Division Z for P10. Division Z has enough excess capacity to fill Division Y’s requirements. The managers of both divisions are compensated based upon reported profits. Which of the following transfer prices will maximize total company profits and be most equitable to the managers of Division Y and Division Z?
Group of answer choices
P22 per unit.
P21 per unit.
There are two possible choices
P17 per unit.
P11 per unit.
P15 per unit
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