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 Case A B 100,000 100,000 100,000 80,000 $50 $35 $30 $20 $8 $6 20,000 $47 20,000 $34 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. Transfer price 1-b. If the managers are free to negotiate and make decisions on their own, will a transfer take place? Yes No 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. of the calling division Deternal renefor n
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 Case A B 100,000 100,000 100,000 80,000 $50 $35 $30 $20 $8 $6 20,000 $47 20,000 $34 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. Transfer price 1-b. If the managers are free to negotiate and make decisions on their own, will a transfer take place? Yes No 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. of the calling division Deternal renefor n
Managerial Accounting
15th Edition
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:Carl Warren, Ph.d. Cma William B. Tayler
Chapter10: Evaluating Decentralized Operations
Section: Chapter Questions
Problem 8E: Rocky Mountain Airlines Inc. has two divisions organized as profit centers, the Passenger Division...
Related questions
Question
![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
Case
A
B
100,000
100,000
100,000
80,000
$50
$35
$30
$20
$8
$6
20,000
$47
20,000
$34
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.
Transfer price
1-b. If the managers are free to negotiate and make decisions on their own, will a transfer take place?
Yes
No
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.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F1a1fc45b-5c45-4072-999a-cf55f63c2678%2Ffec8edf2-2529-4e47-b94f-696f68650310%2Frbrb3v6_processed.png&w=3840&q=75)
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
Case
A
B
100,000
100,000
100,000
80,000
$50
$35
$30
$20
$8
$6
20,000
$47
20,000
$34
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.
Transfer price
1-b. If the managers are free to negotiate and make decisions on their own, will a transfer take place?
Yes
No
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.
Expert Solution
![](/static/compass_v2/shared-icons/check-mark.png)
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 4 steps
![Blurred answer](/static/compass_v2/solution-images/blurred-answer.jpg)
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
![Managerial Accounting](https://www.bartleby.com/isbn_cover_images/9781337912020/9781337912020_smallCoverImage.jpg)
Managerial Accounting
Accounting
ISBN:
9781337912020
Author:
Carl Warren, Ph.d. Cma William B. Tayler
Publisher:
South-Western College Pub
![Financial And Managerial Accounting](https://www.bartleby.com/isbn_cover_images/9781337902663/9781337902663_smallCoverImage.jpg)
Financial And Managerial Accounting
Accounting
ISBN:
9781337902663
Author:
WARREN, Carl S.
Publisher:
Cengage Learning,
Principles of Accounting Volume 2
Accounting
ISBN:
9781947172609
Author:
OpenStax
Publisher:
OpenStax College
![Managerial Accounting](https://www.bartleby.com/isbn_cover_images/9781337912020/9781337912020_smallCoverImage.jpg)
Managerial Accounting
Accounting
ISBN:
9781337912020
Author:
Carl Warren, Ph.d. Cma William B. Tayler
Publisher:
South-Western College Pub
![Financial And Managerial Accounting](https://www.bartleby.com/isbn_cover_images/9781337902663/9781337902663_smallCoverImage.jpg)
Financial And Managerial Accounting
Accounting
ISBN:
9781337902663
Author:
WARREN, Carl S.
Publisher:
Cengage Learning,
Principles of Accounting Volume 2
Accounting
ISBN:
9781947172609
Author:
OpenStax
Publisher:
OpenStax College
![Principles of Cost Accounting](https://www.bartleby.com/isbn_cover_images/9781305087408/9781305087408_smallCoverImage.gif)
Principles of Cost Accounting
Accounting
ISBN:
9781305087408
Author:
Edward J. Vanderbeck, Maria R. Mitchell
Publisher:
Cengage Learning
![Excel Applications for Accounting Principles](https://www.bartleby.com/isbn_cover_images/9781111581565/9781111581565_smallCoverImage.gif)
Excel Applications for Accounting Principles
Accounting
ISBN:
9781111581565
Author:
Gaylord N. Smith
Publisher:
Cengage Learning
![Cornerstones of Cost Management (Cornerstones Ser…](https://www.bartleby.com/isbn_cover_images/9781305970663/9781305970663_smallCoverImage.gif)
Cornerstones of Cost Management (Cornerstones Ser…
Accounting
ISBN:
9781305970663
Author:
Don R. Hansen, Maryanne M. Mowen
Publisher:
Cengage Learning