Mar Company has two decentralized divisions, X and Y. Division X has always purchased certain units from Division Y at $75 per unit. Because Division Y plans to raise the price to $100 per unit, Division X is seeking an outside supplier of the part for the old price of $75 per unit. Division Y's costs follow: * Y's variable costs per unit Y's annual fixed costs Y's annual production of these units for X. $70 $15,000 1,000 units If Division X buys from an outside supplier, the facilities Division Y uses to manufacture these units would be idle. What would be the result if the top management of Mar Company insists that Division X purchase from Division Y at a transfer price of $100 per unit? it would provide higher overall company net operating income than the old transfe price of $75 per unit. it would reduce the company's overall profit because Division X should buy from outside suppliers at $75 per unit if possible. it would provide lower overall company net operating income than the old transfer price of $75 per unit. it would be more profitable for the company than allowing X to buy from outside suppliers at $75 per unit.
Mar Company has two decentralized divisions, X and Y. Division X has always purchased certain units from Division Y at $75 per unit. Because Division Y plans to raise the price to $100 per unit, Division X is seeking an outside supplier of the part for the old price of $75 per unit. Division Y's costs follow: * Y's variable costs per unit Y's annual fixed costs Y's annual production of these units for X. $70 $15,000 1,000 units If Division X buys from an outside supplier, the facilities Division Y uses to manufacture these units would be idle. What would be the result if the top management of Mar Company insists that Division X purchase from Division Y at a transfer price of $100 per unit? it would provide higher overall company net operating income than the old transfe price of $75 per unit. it would reduce the company's overall profit because Division X should buy from outside suppliers at $75 per unit if possible. it would provide lower overall company net operating income than the old transfer price of $75 per unit. it would be more profitable for the company than allowing X to buy from outside suppliers at $75 per unit.
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 17E: Materials used by the Instrument Division of Ziegler Inc. are currently purchased from outside...
Related questions
Question
p5-6
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
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
Accounting
ISBN:
9781337912020
Author:
Carl Warren, Ph.d. Cma William B. Tayler
Publisher:
South-Western College Pub
Cornerstones of Cost Management (Cornerstones Ser…
Accounting
ISBN:
9781305970663
Author:
Don R. Hansen, Maryanne M. Mowen
Publisher:
Cengage Learning
Principles of Accounting Volume 2
Accounting
ISBN:
9781947172609
Author:
OpenStax
Publisher:
OpenStax College
Managerial Accounting
Accounting
ISBN:
9781337912020
Author:
Carl Warren, Ph.d. Cma William B. Tayler
Publisher:
South-Western College Pub
Cornerstones of Cost Management (Cornerstones Ser…
Accounting
ISBN:
9781305970663
Author:
Don R. Hansen, Maryanne M. Mowen
Publisher:
Cengage Learning
Principles of Accounting Volume 2
Accounting
ISBN:
9781947172609
Author:
OpenStax
Publisher:
OpenStax College