In the Bombadier Company, Division A has a product that can be sold either to outside customers or to Division B. Information about these divisions is given below: Case 1 Case 2 Division A: Capacity in units 100,000 100,000 Number of units sold externally 100,000 60,000 Market selling price $90 $75 Variable costs per unit 73 58 Fixed costs per unit based on capacity 10 10 Division B: Number of units needed for production 40,000 40,000 Purchase price per unit from external supplier $86 $74 The company uses the opportunity cost approach to transfer pricing. Which case should not be transferred internally? a.Both should be transferred internally. b.Neither should be transferred internally. c.Case 1
In the Bombadier Company, Division A has a product that can be sold either to outside customers or to Division B. Information about these divisions is given below: Case 1 Case 2 Division A: Capacity in units 100,000 100,000 Number of units sold externally 100,000 60,000 Market selling price $90 $75 Variable costs per unit 73 58 Fixed costs per unit based on capacity 10 10 Division B: Number of units needed for production 40,000 40,000 Purchase price per unit from external supplier $86 $74 The company uses the opportunity cost approach to transfer pricing. Which case should not be transferred internally? a.Both should be transferred internally. b.Neither should be transferred internally. c.Case 1
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
In the Bombadier Company, Division A has a product that can be sold either to outside customers or to Division B. Information about these divisions is given below:
The company uses the opportunity cost approach to transfer pricing. Which case should not be transferred internally?
Case 1 | Case 2 | |
Division A: | ||
Capacity in units | 100,000 | 100,000 |
Number of units sold externally | 100,000 | 60,000 |
Market selling price | $90 | $75 |
Variable costs per unit | 73 | 58 |
Fixed costs per unit based on capacity | 10 | 10 |
Division B: | ||
Number of units needed for production | 40,000 | 40,000 |
Purchase price per unit from external supplier | $86 | $74 |
The company uses the opportunity cost approach to transfer pricing. Which case should not be transferred internally?
a.Both should be transferred internally.
b.Neither should be transferred internally.
c.Case 1
d.Case 2
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