Nelcro Company's Electrical Division produces a high-quality transformer. Sales and cost data on the transformer follow: Selling price per unit on the outside market Variable costs per unit Fixed costs per unit (based on capacity) Capacity in units $50 $20 $8 62,000 Nelcro Company has a Motor Division that would like to begin purchasing this transformer from the Electrical Division. The Motor Division is currently purchasing 10,000 transformers each year from another company at a cost of $35 per transformer. Nelcro Company evaluates its division managers on the basis of divisional profits. Required: 1. Assume that the Electrical Division is now selling only 52,000 transformers each year to outside customers. a. From the standpoint of the Electrical Division, what is the lowest acceptable transfer price for transformers sold to the Motor Division? Transfer price > 0 0 b. From the standpoint of the Motor Division, what is the highest acceptable transfer price for transformers acquired from the Electrical Division? Transfer price
Nelcro Company's Electrical Division produces a high-quality transformer. Sales and cost data on the transformer follow: Selling price per unit on the outside market Variable costs per unit Fixed costs per unit (based on capacity) Capacity in units $50 $20 $8 62,000 Nelcro Company has a Motor Division that would like to begin purchasing this transformer from the Electrical Division. The Motor Division is currently purchasing 10,000 transformers each year from another company at a cost of $35 per transformer. Nelcro Company evaluates its division managers on the basis of divisional profits. Required: 1. Assume that the Electrical Division is now selling only 52,000 transformers each year to outside customers. a. From the standpoint of the Electrical Division, what is the lowest acceptable transfer price for transformers sold to the Motor Division? Transfer price > 0 0 b. From the standpoint of the Motor Division, what is the highest acceptable transfer price for transformers acquired from the Electrical Division? Transfer price
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Nelcro Company's Electrical Division produces a high-quality transformer. Sales and cost data on the
transformer follow:
Selling price per unit on the outside market
Variable costs per unit
Fixed costs per unit (based on capacity)
Capacity in units
$50
$20
$8
62,000
Nelcro Company has a Motor Division that would like to begin purchasing this transformer from the
Electrical Division. The Motor Division is currently purchasing 10,000 transformers each year from another
company at a cost of $35 per transformer. Nelcro Company evaluates its division managers on the basis of
divisional profits.
Required:
1. Assume that the Electrical Division is now selling only 52,000 transformers each year to outside
customers.
a. From the standpoint of the Electrical Division, what is the lowest acceptable transfer price for
transformers sold to the Motor Division?
Transfer price 2
0
0
b. From the standpoint of the Motor Division, what is the highest acceptable transfer price for transformers
acquired from the Electrical Division?
Transfer price
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