Jarred Manufacturing has a valve division that manufactures and sells a standard valve. Capacity in Units 100 000 units Selling Price to external customers R300 Variable Costs per unit R160 Fixed Costs (based on capacity) R90 per unit The company has a Pump division that could use this valve in one of its pumps. The pump division is currently purchasing 10 000 valves per year from a German supplier at a cost of R290 per valve. Required; 4.1 Assuming that the Valve Division has ample idle capacity to handle all of the Pump Division needs. What is the acceptable range, if any, for the transfer price between the two divisions? 4.2 Assuming that the Valve Division is selling all of its valves that it can produce to external customers. What is the acceptable range, if any, for the transfer price between the two divisions? 4.3 Assuming that the Valve Division is selling all of its valves that it can produce to external customers and that R30 in variable costs can be avoided on inter-division transfers, due to reduced selling expenses. What is the acceptable range, if any, for the transfer price between the two divisions?
Jarred Manufacturing has a valve division that manufactures and sells a standard valve.
Capacity in Units 100 000 units
Selling Price to external customers R300
Variable Costs per unit R160
Fixed Costs (based on capacity) R90 per unit
The company has a Pump division that could use this valve in one of its pumps. The pump division is currently purchasing 10 000 valves per year from a German supplier at a cost of R290 per valve.
Required;
4.1 Assuming that the Valve Division has ample idle capacity to handle all of the Pump Division needs. What is the acceptable range, if any, for the transfer price between the two divisions?
4.2 Assuming that the Valve Division is selling all of its valves that it can produce to external customers. What is the acceptable range, if any, for the transfer price between the two divisions?
4.3 Assuming that the Valve Division is selling all of its valves that it can produce to external customers and that R30 in variable costs can be avoided on inter-division transfers, due to reduced selling expenses. What is the acceptable range, if any, for the transfer price between the two divisions?
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