In each of the cases below, assume Division X has a of the same company for use in its production proces divisional profits.
In each of the cases below, assume Division X has a of the same company for use in its production proces divisional profits.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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[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
Variable costs per unit
Division Y:
Division X:
Capacity in units
Number of units being sold to outside customers
Selling price per unit to outside customers
Fixed costs per unit (based on capacity)
Number of units needed for production
107,000
107,000
$ 57
B
93,000
71,000
$ 29
$ 21
$
13
$ 10
$ 5
22,000
22,000
Purchase price per unit now being paid to an outside
supplier
$ 53
$ 26
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 lowest acceptable transfer price from the perspective of the selling division?
Lowest acceptable transfer price
Req 2B >](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fdcfb0428-8e62-41c8-9d2b-3e4003f8af75%2Fee11b463-12ed-4569-b90a-88198637ff29%2F0fjfncm_processed.png&w=3840&q=75)
Transcribed Image Text:6
Required information
[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
Variable costs per unit
Division Y:
Division X:
Capacity in units
Number of units being sold to outside customers
Selling price per unit to outside customers
Fixed costs per unit (based on capacity)
Number of units needed for production
107,000
107,000
$ 57
B
93,000
71,000
$ 29
$ 21
$
13
$ 10
$ 5
22,000
22,000
Purchase price per unit now being paid to an outside
supplier
$ 53
$ 26
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 lowest acceptable transfer price from the perspective of the selling division?
Lowest acceptable transfer price
Req 2B >
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Step 1: Define 'Transfer Price':
VIEWStep 2: (2a) Determine the lowest acceptable transfer price from the perspective of the selling division:
VIEWStep 3: (2b) Determine the highest acceptable transfer price from the perspective of the buying division:
VIEWStep 4: (2c) Determine the range of acceptable transfer prices (if any) between the two divisions:
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