In each of the cases below, assume that 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: 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) Division Y: Number of units needed for production Purchase price per unit now being paid to an outside supplier Transfer price Yes No Transfer price A 100,000 100,000 1-b. If the managers are free to negotiate and make decisions on their own, will a transfer take place? Yes No 2-c. What is the range of transfer price the managers of both divisions should agree? $50 $30 $8 The transfer price can be a lowest of 20,000 $47 Required: 1-a. Refer to the data in case A above. Assume that $2 per unit in variable selling costs can be avoided on intracompany sales. Determine the transfer price of the selling division. and a highest of Case 2-b. If the managers are free to negotiate and make decisions on their own, will a transfer take place? B 2-a. Refer to the data in case B above. In this case there will be no reduction in variable selling costs on intracompany sales. Determine the transfer price of the selling division. 100,000 80,000 $35 $20 $6 20,000 $34
In each of the cases below, assume that 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: 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) Division Y: Number of units needed for production Purchase price per unit now being paid to an outside supplier Transfer price Yes No Transfer price A 100,000 100,000 1-b. If the managers are free to negotiate and make decisions on their own, will a transfer take place? Yes No 2-c. What is the range of transfer price the managers of both divisions should agree? $50 $30 $8 The transfer price can be a lowest of 20,000 $47 Required: 1-a. Refer to the data in case A above. Assume that $2 per unit in variable selling costs can be avoided on intracompany sales. Determine the transfer price of the selling division. and a highest of Case 2-b. If the managers are free to negotiate and make decisions on their own, will a transfer take place? B 2-a. Refer to the data in case B above. In this case there will be no reduction in variable selling costs on intracompany sales. Determine the transfer price of the selling division. 100,000 80,000 $35 $20 $6 20,000 $34
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Jj.171.
Transcribed Image Text:In each of the cases below, assume that 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:
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)
Division Y:
Number of units needed for production
Purchase price per unit now being paid to an outside supplier
Transfer price
O Yes
O No
Transfer price
A
100,000
100,000
1-b. If the managers are free to negotiate and make decisions on their own, will a transfer take place?
Yes
O No
2-c. What is the range of transfer price the managers of both divisions should agree?
$50
$30
$8
Required:
1-a. Refer to the data in case A above. Assume that $2 per unit in variable selling costs can be avoided on intracompany sales.
Determine the transfer price of the selling division.
The transfer price can be a lowest of
Case
and a highest of
20,000
$47
2-b. If the managers are free to negotiate and make decisions on their own, will a transfer take place?
2-a. Refer to the data in case B above. In this case there will be no reduction in variable selling costs on intracompany sales.
Determine the transfer price of the selling division.
B
100,000
80,000
$35
$20
$6
20,000
$34
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