Fyodor Corporation has a Parts Division that does work for other Divisions in the company as well as for outside customers. The company's Machine Division has asked the Parts Division to provide it with 6,000 special parts each year. The special parts would require $21 per unit in variable production costs. The Machine Division has a bid from an outside supplier for the special parts at $31.20 per unit. In order to have time and space to produce the special part, the Parts Division would have to cut back production of another part-the QR4 that it presently is producing. The QR4 sells for $40 per unit and requires $20 per unit in variable production costs. Packaging and shipping costs of the QR4 are $2 per unit. Packaging and shipping costs for the new special part would be only $0.50 per unit. The Parts Division is now producing and selling 30,000 units of the QR4 each year. Production and sales of the QR4 would drop by 5% if the new special part is produced for the Machine Division. Required: a. What is the range of transfer prices within which both the Divisions' profits would increase as a result of agreeing to the transfer of 6,000 special parts per year from the Parts Division to the Machine Division? Note: Round your final answers to 2 decimal places. Answer is complete but not entirely correct. Range of transfer prices: $ 5.50
Fyodor Corporation has a Parts Division that does work for other Divisions in the company as well as for outside customers. The company's Machine Division has asked the Parts Division to provide it with 6,000 special parts each year. The special parts would require $21 per unit in variable production costs. The Machine Division has a bid from an outside supplier for the special parts at $31.20 per unit. In order to have time and space to produce the special part, the Parts Division would have to cut back production of another part-the QR4 that it presently is producing. The QR4 sells for $40 per unit and requires $20 per unit in variable production costs. Packaging and shipping costs of the QR4 are $2 per unit. Packaging and shipping costs for the new special part would be only $0.50 per unit. The Parts Division is now producing and selling 30,000 units of the QR4 each year. Production and sales of the QR4 would drop by 5% if the new special part is produced for the Machine Division. Required: a. What is the range of transfer prices within which both the Divisions' profits would increase as a result of agreeing to the transfer of 6,000 special parts per year from the Parts Division to the Machine Division? Note: Round your final answers to 2 decimal places. Answer is complete but not entirely correct. Range of transfer prices: $ 5.50
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Transcribed Image Text:Fyodor Corporation has a Parts Division that does work for other Divisions in the company as well as for outside customers. The
company's Machine Division has asked the Parts Division to provide it with 6,000 special parts each year. The special parts would
require $21 per unit in variable production costs.
The Machine Division has a bid from an outside supplier for the special parts at $31.20 per unit. In order to have time and space to
produce the special part, the Parts Division would have to cut back production of another part-the QR4 that it presently is producing.
The QR4 sells for $40 per unit and requires $20 per unit in variable production costs. Packaging and shipping costs of the QR4 are $2
per unit. Packaging and shipping costs for the new special part would be only $0.50 per unit. The Parts Division is now producing and
selling 30,000 units of the QR4 each year. Production and sales of the QR4 would drop by 5% if the new special part is produced for
the Machine Division.
Required:
a. What is the range of transfer prices within which both the Divisions' profits would increase as a result of agreeing to the transfer of
6,000 special parts per year from the Parts Division to the Machine Division?
Note: Round your final answers to 2 decimal places.
Answer is complete but not entirely correct.
Range of transfer prices: $
5.50
<Transfer
price<
$
15.20
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