NUBD Co. has two divisions, Parts Division (PD and Equipment Division (ED). Each division manager has full responsibility on all decisions regarding sales to internal and external customers. ED has always acquired a certain part from PD at negotiated price of P38 per unit. Due to peso devaluation, PD informed ED that it has increased its transfer price to P45. The new market price is P50 per unit. An outside supplier offered to sell ED the same part at P40 per unit and the management of ED is considering accepting the offer. The Parts division provided the following data: Equipment division's parts requirements 5,000 units Parts division's variable cost per unit Parts division's fixed cost per unit P35 P10
NUBD Co. has two divisions, Parts Division (PD and Equipment Division (ED). Each division manager has full responsibility on all decisions regarding sales to internal and external customers. ED has always acquired a certain part from PD at negotiated price of P38 per unit. Due to peso devaluation, PD informed ED that it has increased its transfer price to P45. The new market price is P50 per unit. An outside supplier offered to sell ED the same part at P40 per unit and the management of ED is considering accepting the offer. The Parts division provided the following data: Equipment division's parts requirements 5,000 units Parts division's variable cost per unit Parts division's fixed cost per unit P35 P10
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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The total advantage (disadvantage) to Equipment Division’s profit if it decided to buy from outside supplier instead of accepting Part Division’s transfer price is
Transcribed Image Text:NUBD Co. has two divisions, Parts Division (PD and Equipment Division (ED). Each
division manager has full responsibility on all decisions regarding sales to internal and
external customers. ED has always acquired a certain part from PD at negotiated
price of P38 per unit. Due to peso devaluation, PD informed ED that it has increased
its transfer price to P45. The new market price is P50 per unit.
An outside supplier offered to sell ED the same part at P40 per unit and the
management of ED is considering accepting the offer. The Parts division provided the
following data:
Equipment division's parts requirements
Parts division's variable cost per unit
Parts division's fixed cost per unit
5,000 units
P35
P10
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