Federated Manufacturing Inc. (FMI) produces electronic components in three divisions: industrial, commercial, and consumer products. The commercial products division annually purchases 11,400 units of part 23–6711, which the industrial division produces for use in manufacturing one of its own products. The commercial division is growing rapidly. The commercial division is expanding its production and now wants to increase its purchases of part 23–6711 to 16,400 units per year. The problem is that the industrial division is at full capacity. No new investment in the industrial division has been made for some years because top management sees little future growth in its products, so its capacity is unlikely to increase soon.   The commercial division can buy part 23–6711 from Advanced Micro Inc. or from Admiral Electric, a customer of the industrial division now purchasing 720 units of part 88–461. The industrial division's sales to Admiral would not be affected by the commercial division’s decision regarding part 23–6711.           Industrial Division:       Data on part 23–6711:       Price to commercial division $ 213   Variable manufacturing costs   162   Price to outside buyers   219   Data on part 88–461:       Variable manufacturing costs $ 65   Sales price   95   Other Suppliers of Part 23–6711:       Advance Micro Inc., price $ 214   Admiral Electric, price   224       Required: 1. What is the proper decision regarding where the commercial division should purchase the additional 5,000 parts, and what is the correct transfer price? 2. Assume that the industrial division’s sales to Admiral will be canceled if the commercial division does not buy from Admiral. What would be the unit cost to FMI in this case, and would the desired transfer price change?   Assume that the industrial division’s sales to Admiral will be canceled if the commercial division does not buy from Admiral. What would be the unit cost to FMI in this case, and would the desired transfer price change? (Round your answer to 2 decimal places.)               Unit cost to FMI   per unit Transfer price change

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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Federated Manufacturing Inc. (FMI) produces electronic components in three divisions: industrial, commercial, and consumer products. The commercial products division annually purchases 11,400 units of part 23–6711, which the industrial division produces for use in manufacturing one of its own products. The commercial division is growing rapidly. The commercial division is expanding its production and now wants to increase its purchases of part 23–6711 to 16,400 units per year. The problem is that the industrial division is at full capacity. No new investment in the industrial division has been made for some years because top management sees little future growth in its products, so its capacity is unlikely to increase soon.

 

The commercial division can buy part 23–6711 from Advanced Micro Inc. or from Admiral Electric, a customer of the industrial division now purchasing 720 units of part 88–461. The industrial division's sales to Admiral would not be affected by the commercial division’s decision regarding part 23–6711.

 

       
Industrial Division:      
Data on part 23–6711:      
Price to commercial division $ 213  
Variable manufacturing costs   162  
Price to outside buyers   219  
Data on part 88–461:      
Variable manufacturing costs $ 65  
Sales price   95  
Other Suppliers of Part 23–6711:      
Advance Micro Inc., price $ 214  
Admiral Electric, price   224  
 

 

Required:

1. What is the proper decision regarding where the commercial division should purchase the additional 5,000 parts, and what is the correct transfer price?

2. Assume that the industrial division’s sales to Admiral will be canceled if the commercial division does not buy from Admiral. What would be the unit cost to FMI in this case, and would the desired transfer price change?

 

Assume that the industrial division’s sales to Admiral will be canceled if the commercial division does not buy from Admiral. What would be the unit cost to FMI in this case, and would the desired transfer price change? (Round your answer to 2 decimal places.)

 
 
 
 
     
Unit cost to FMI   per unit
Transfer price change    
 
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