Figure 20-3 The Adam Division produces a component that is used by the West Division. The cost of manufacturing the component is as follows: Direct materials £30 Direct labour 8 Variable overhead 10 Fixed overheada _12 Total cost £60 aBased on a practical volume of 250,000 components Other costs incurred by the Adam Division are as follows: Fixed selling and administrative £1,200,000 Variable selling £4 per unit The component usually sells for £90 in the external market. The Adam Division is capable of producing 250,000 components per year; however, only 200,000 components are expected to be sold next year. The variable selling expenses are avoidable if the component is sold internally. The West Division has been buying the same component from an external supplier for £80 each. The West Division expects to use 40,000 units of the component next year. The manager of the West Division has offered to buy 40,000 units from the Adam Division for £56 each. Refer to Figure 20-3. The maximum transfer price that the West Division would be willing to pay is Group of answer choices £60. £38. £48. £90.
Figure 20-3
The Adam Division produces a component that is used by the West Division. The cost of manufacturing the component is as follows:
Direct materials £30
Direct labour 8
Variable
Fixed overheada _12
Total cost £60
aBased on a practical volume of 250,000 components
Other costs incurred by the Adam Division are as follows:
Fixed selling and administrative £1,200,000
Variable selling £4 per unit
The component usually sells for £90 in the external market. The Adam Division is capable of producing 250,000 components per year; however, only 200,000 components are expected to be sold next year. The variable selling expenses are avoidable if the component is sold internally.
The West Division has been buying the same component from an external supplier for £80 each. The West Division expects to use 40,000 units of the component next year. The manager of the West Division has offered to buy 40,000 units from the Adam Division for £56 each.
Refer to Figure 20-3. The maximum transfer price that the West Division would be willing to pay is
Figure 20-5
Allied Industries has two divisions: the Bradley Division and the Rommel Division. Information about the component that the Bradley Division produces is as follows:
Sales £180 per unit
Variable
Fixed manufacturing overhead £50 per unit
Expected sales in units 10,000 units
The Bradley Division can produce up to 12,000 components per year. The Rommel Division needs 800 units of the component for a product it manufactures.
Refer to Figure 20-5. The minimum transfer price that the Bradley Division would be willing to accept is
Figure 20-9
Miggs Manufacturing has one plant located in Belgium and another plant located in the United States. The Belgium plant manufactures a component used in a finished product manufactured at the U.S. plant. Currently, the Belgium plant is operating at 70 per cent capacity. In Belgium, the income tax rate is 42 per cent; in the United States, the corporate income tax rate is 35 per cent.
The market price of the component is £200 and the Belgium plant's costs to manufacture the component are as follows:
Direct materials £20
Direct labour 40
Variable overhead 10
Fixed overhead 30
Refer to Figure 20-9. What is the minimum transfer price that the Belgium division would be willing to accept?
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