Materials used by the Instrument Division of Ziegler Inc. are currently purchased from outside suppliers at a cost of $402 per unit. However, the same materials are available from the Components Division. The Components Division has unused capacity and can produce the materials needed by the Instrument Division at a variable cost of $334 per unit Assume that a transfer price of $382 has been established and that 23,900 units of materials are transferred, with no reduction in the Components Division's current How much would Ziegler Inc.'s total operating income increase? How much would the Instrument Division's operating income increase? How much would the Components Division's operating income increase? d. Any transfer price will cause the total income of the company to incrRASE materiais for products that are ultimately sold to the outside as long as the suppler division capacity is jeted ✓toward making
Materials used by the Instrument Division of Ziegler Inc. are currently purchased from outside suppliers at a cost of $402 per unit. However, the same materials are available from the Components Division. The Components Division has unused capacity and can produce the materials needed by the Instrument Division at a variable cost of $334 per unit Assume that a transfer price of $382 has been established and that 23,900 units of materials are transferred, with no reduction in the Components Division's current How much would Ziegler Inc.'s total operating income increase? How much would the Instrument Division's operating income increase? How much would the Components Division's operating income increase? d. Any transfer price will cause the total income of the company to incrRASE materiais for products that are ultimately sold to the outside as long as the suppler division capacity is jeted ✓toward making
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Decision on transfer pricing
Materials used by the Instrument Division of Ziegier Inc. are currently purchased from outside suppliers at a cost of $402 per unit. However, the same materials are
available from the Components Division. The Components Division has unused capacity and can produce the materials needed by the Instrument Division at a variable
cost of $334 per unit.
Assume that a transfer price of $382 has been established and that 23,900 units of materials are transferred, with no reduction in the Components Division's current
sales
a. How much would Ziegler Inc.'s total operating income increase?
b. How much would the Instrument Division's operating income increase?
c. How much would the Components Division's operating income increase?
d. Any transfer price will cause the total income of the company to increase
materials for products that are ultimately said to the outside.
Feedack
✔, as long as the suppler division capacity is used
toward making
Check My W
a-c. Determine what "difference should be computed for each part. Is it the difference between the transfer price and variable cost, or the market price and
variable cost, or the market price and transfer cost. Then, multiply the difference by the units transferred.
d. Consider the effect of setting a transfer price outside the acceptable range
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