Exercise 11-13 (Algo) Transfer Pricing Situations [LO11-3] [The following information applies to the questions displayed below.] In each of the cases below, assume Division X has a product that can be sold either to outside customers or to Division Y of the same company for use in its production process. The managers of the divisions are evaluated based on their divisional profits. Case A B Division X: Capacity in units Number of units being sold to outside customers Selling price per unit to outside customers 95,000 95,000 96,000 79,000 $ 50 $ 30 Variable costs per unit $ 28 $ 12 Fixed costs per unit (based on capacity) $ 6 $ 4 Division Y: Number of units needed for production 17,000 17,000 Purchase price per unit now being paid to an outside supplier $ 43 $ 24 Exercise 11-13 (Algo) Part 2 Required: 2. Refer to the data in case B above. In this case, there will be no savings in variable selling costs on intracompany sales. a. What is the lowest acceptable transfer price from the perspective of the selling division? b. What is the highest acceptable transfer price from the perspective of the buying division? c. What is the range of acceptable transfer prices (if any) between the two divisions? If the managers are free to negotiate and make decisions on their own, will a transfer probably take place? Complete this question by entering your answers in the tabs below. Req 2A Req 2B Req 2C What is the range of acceptable transfer prices (if any) between the two divisions? If the managers are free to negotiate and make decisions on their own, will a transfer probably take place? Identify the range of acceptable transfer prices (if any): There is not a range of acceptable transfer prices. There is a range of acceptable transfer prices as shown below: Transfer price Are the managers likely to agree on a transfer price? S O Yes No
Exercise 11-13 (Algo) Transfer Pricing Situations [LO11-3] [The following information applies to the questions displayed below.] In each of the cases below, assume Division X has a product that can be sold either to outside customers or to Division Y of the same company for use in its production process. The managers of the divisions are evaluated based on their divisional profits. Case A B Division X: Capacity in units Number of units being sold to outside customers Selling price per unit to outside customers 95,000 95,000 96,000 79,000 $ 50 $ 30 Variable costs per unit $ 28 $ 12 Fixed costs per unit (based on capacity) $ 6 $ 4 Division Y: Number of units needed for production 17,000 17,000 Purchase price per unit now being paid to an outside supplier $ 43 $ 24 Exercise 11-13 (Algo) Part 2 Required: 2. Refer to the data in case B above. In this case, there will be no savings in variable selling costs on intracompany sales. a. What is the lowest acceptable transfer price from the perspective of the selling division? b. What is the highest acceptable transfer price from the perspective of the buying division? c. What is the range of acceptable transfer prices (if any) between the two divisions? If the managers are free to negotiate and make decisions on their own, will a transfer probably take place? Complete this question by entering your answers in the tabs below. Req 2A Req 2B Req 2C What is the range of acceptable transfer prices (if any) between the two divisions? If the managers are free to negotiate and make decisions on their own, will a transfer probably take place? Identify the range of acceptable transfer prices (if any): There is not a range of acceptable transfer prices. There is a range of acceptable transfer prices as shown below: Transfer price Are the managers likely to agree on a transfer price? S O Yes No
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
![Exercise 11-13 (Algo) Transfer Pricing Situations [LO11-3]
[The following information applies to the questions displayed below.]
In each of the cases below, assume Division X has a product that can be sold either to outside customers or to Division Y
of the same company for use in its production process. The managers of the divisions are evaluated based on their
divisional profits.
Case
A
B
Division X:
Capacity in units
Number of units being sold to outside customers
Selling price per unit to outside customers
95,000
95,000
96,000
79,000
$ 50
$ 30
Variable costs per unit
Fixed costs per unit (based on capacity)
Division Y:
$ 28
$ 12
$ 6
$ 4
Number of units needed for production
17,000
17,000
Purchase price per unit now being paid to an outside
supplier
$ 43
$ 24
Exercise 11-13 (Algo) Part 2
Required:
2. Refer to the data in case B above. In this case, there will be no savings in variable selling costs on intracompany sales.
a. What is the lowest acceptable transfer price from the perspective of the selling division?
b. What is the highest acceptable transfer price from the perspective of the buying division?
c. What is the range of acceptable transfer prices (if any) between the two divisions? If the managers are free to negotiate and make
decisions on their own, will a transfer probably take place?
Complete this question by entering your answers in the tabs below.
Req 2A
Req 2B
Req 2C
What is the range of acceptable transfer prices (if any) between the two divisions? If the managers are free to negotiate and
make decisions on their own, will a transfer probably take place?
Identify the range of acceptable transfer prices (if any):
There is not a range of acceptable transfer prices.
There is a range of acceptable transfer prices as shown below:
S
Transfer price
Are the managers likely to agree on a transfer price?
Yes
No](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fa56bf93b-7435-4700-bc31-504b5cfe0556%2F16638cbc-0648-45ff-8e8d-e51c8b22f435%2F79ejrfp_processed.png&w=3840&q=75)
Transcribed Image Text:Exercise 11-13 (Algo) Transfer Pricing Situations [LO11-3]
[The following information applies to the questions displayed below.]
In each of the cases below, assume Division X has a product that can be sold either to outside customers or to Division Y
of the same company for use in its production process. The managers of the divisions are evaluated based on their
divisional profits.
Case
A
B
Division X:
Capacity in units
Number of units being sold to outside customers
Selling price per unit to outside customers
95,000
95,000
96,000
79,000
$ 50
$ 30
Variable costs per unit
Fixed costs per unit (based on capacity)
Division Y:
$ 28
$ 12
$ 6
$ 4
Number of units needed for production
17,000
17,000
Purchase price per unit now being paid to an outside
supplier
$ 43
$ 24
Exercise 11-13 (Algo) Part 2
Required:
2. Refer to the data in case B above. In this case, there will be no savings in variable selling costs on intracompany sales.
a. What is the lowest acceptable transfer price from the perspective of the selling division?
b. What is the highest acceptable transfer price from the perspective of the buying division?
c. What is the range of acceptable transfer prices (if any) between the two divisions? If the managers are free to negotiate and make
decisions on their own, will a transfer probably take place?
Complete this question by entering your answers in the tabs below.
Req 2A
Req 2B
Req 2C
What is the range of acceptable transfer prices (if any) between the two divisions? If the managers are free to negotiate and
make decisions on their own, will a transfer probably take place?
Identify the range of acceptable transfer prices (if any):
There is not a range of acceptable transfer prices.
There is a range of acceptable transfer prices as shown below:
S
Transfer price
Are the managers likely to agree on a transfer price?
Yes
No
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 3 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education