P6-2 Transfer pricing: buy outside versus internal transfer Ajax Division of Delta Corporation produces electric motors, 20% of which are sold to Flash Division of Delta and the remainder to outside customers. Delta treats its divisions as profit centres and allows division managers to choose their sources of sale and supply. Corporate policy requires that all interdivisional sales and purchases be recorded at variable cost as a transfer price. Ajax Division's estimated sales and standard cost data for the coming year based on the full capacity of 100 000 units are as follows: Sales Variable costs Fixed costs Profit Unit sales To Flash To Outsiders $8,000,000 -3,600,000 -300,000 -1,200,000 -$300,000 $3,200,000 20,000 80,000 $900,000 -900,000 Ajax has an opportunity to sell the 20 000 units to an outside customer (instead of to flash Division) at a price of $75 per unit on a continuing basis in the coming year. Flash can purchase its requirement of 20 000 motors from an outside supplier at a price of $85 per unit. Required: (a) Assuming that Ajax Division desires to maximise its gross profit, should Ajax take on the new customer and drop its sales to flash for the coming year, and why?

P6-2 Transfer pricing: buy outside versus internal transfer Ajax Division of Delta Corporation produces electric motors, 20% of which are sold to Flash Division of Delta and the remainder to outside customers. Delta treats its divisions as profit centres and allows division managers to choose their sources of sale and supply. Corporate policy requires that all interdivisional sales and purchases be recorded at variable cost as a transfer price. Ajax Division's estimated sales and standard cost data for the coming year based on the full capacity of 100 000 units are as follows: Sales Variable costs Fixed costs Profit Unit sales To Flash To Outsiders $8,000,000 -3,600,000 -300,000 -1,200,000 -$300,000 $3,200,000 20,000 80,000 $900,000 -900,000 Ajax has an opportunity to sell the 20 000 units to an outside customer (instead of to flash Division) at a price of $75 per unit on a continuing basis in the coming year. Flash can purchase its requirement of 20 000 motors from an outside supplier at a price of $85 per unit. Required: (a) Assuming that Ajax Division desires to maximise its gross profit, should Ajax take on the new customer and drop its sales to flash for the coming year, and why?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Please help me
1- Assume Division A offers to sell Q) 15,000 units to Division B for $74 and that Division B refuses this price. What will be the loss in potential prodits for the company whole as a whole
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4. If a transfer price of $340 per unit is negotiated, how much would the income from operations of each division and total company income from operations increase? The Semiconductors Division's income from operations would increase by$fill in the blank 75932002afef041_1 The Navigational Systems Division's income from operations would increase by$fill in the blank 75932002afef041_2 Exoplex Industries Inc.'s total income from operations would increase by$fill in the blank 75932002afef041_3 5a. What is the range of possible negotiated transfer prices that would be acceptable for Exoplex Industries Inc.? Any transfer price than the Semiconductors Division’s variable expenses per unit but than the market price would be acceptable. 5b. Assuming that the managers of the two divisions cannot agree on a transfer price, what price would you suggest as the transfer price?$fill in the blank 75932002afef041_6
Decision on Transfer Pricing