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 Variable costs per unit Fixed costs per unit (based on capacity) 101,000 101,000 2$ 93,000 71,000 54 $ 29 28 $ 14 8 $ 4. Division Y: Number of units needed for production Purchase price per unit now being paid to an outside supplier 22,000 22,000 $ 50 $ 28 Required: 1. Refer to the data in case A above. Assume in this case that $2 per unit in variable selling costs can be avoided intracompany sales. a. What is the lowest acceptable transfer price from the perspective of the selling division? b. What is the highest acceptable transfer price from the perspective of the buying division? c. What is the range of acceptable transfer prices (if any) between the two divisions? If the managers are free to negotiate and make decisions on their own, will a transfer probably take place?
In each of the cases below, assume Division X has a product that can be sold either to outside customers or to Division Y of the same company for use in its production process. The managers of the divisions are evaluated based on their divisional profits. Case A B Division X: Capacity in units Number of units being sold to outside customers Selling price per unit to outside customers Variable costs per unit Fixed costs per unit (based on capacity) 101,000 101,000 2$ 93,000 71,000 54 $ 29 28 $ 14 8 $ 4. Division Y: Number of units needed for production Purchase price per unit now being paid to an outside supplier 22,000 22,000 $ 50 $ 28 Required: 1. Refer to the data in case A above. Assume in this case that $2 per unit in variable selling costs can be avoided 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?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Req 1A
Req 1B
Req 1C
What is the range of acceptable transfer prices (if any) between the two divisions?
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?
OYes
No
Transcribed Image Text: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
101,000
101,000
$
2$
93,000
71,000
Selling price per unit to outside customers
Variable costs per unit
Fixed costs per unit (based on capacity)
54 $
28 $
29
14
8.
4.
Division Y:
Number of units needed for production
Purchase price per unit now being paid
to an outside supplier
22,000
22,000
$
50 $
28
Required:
1. Refer to the data in case A above. Assume in this case that $2 per unit in variable selling costs can be avoided 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?
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