Pertinent transfer price, perfect and imperfect markets. Mountaineer, Ic., has two divi- sions, A and B, that manufacture expensive bicycles. Division A produces the bicycle frame, and divi- sion B assembles the rest of the bicycle onto the frame. There is a market for both the subassembly and the final product. Each division has been designated as a profit center. The transfer price for the subassembly has been set at the long-run average market price. The following data are available for each division: Selling price for final product $280 Long-run average selling price for intermediate product Incremental cost per unit for completion in division B Incremental cost per unit in division A 160 170 100 The manager of division B has made the following calculation: $280 Selling price for final product Transferred-in cost per unit (market) Incremental cost per unit for completion Contribution (loss) on product $160 170 330 S (50)

Pertinent transfer price, perfect and imperfect markets. Mountaineer, Ic., has two divi- sions, A and B, that manufacture expensive bicycles. Division A produces the bicycle frame, and divi- sion B assembles the rest of the bicycle onto the frame. There is a market for both the subassembly and the final product. Each division has been designated as a profit center. The transfer price for the subassembly has been set at the long-run average market price. The following data are available for each division: Selling price for final product $280 Long-run average selling price for intermediate product Incremental cost per unit for completion in division B Incremental cost per unit in division A 160 170 100 The manager of division B has made the following calculation: $280 Selling price for final product Transferred-in cost per unit (market) Incremental cost per unit for completion Contribution (loss) on product $160 170 330 S (50)

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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Question

Suppose division A quoted a transfer price of $110 for up to 800 units. What would be the contribution to the company as a whole if a transfer were made? As manager of division B, would you be inclined to buy at $110? Explain.

Pertinent transfer price, perfect and imperfect markets. Mountaineer, Ic., has two divi-
sions, A and B, that manufacture expensive bicycles. Division A produces the bicycle frame, and divi-
sion B assembles the rest of the bicycle onto the frame. There is a market for both the subassembly
and the final product. Each division has been designated as a profit center. The transfer price for the
subassembly has been set at the long-run average market price. The following data are available for
each division:
Selling price for final product
$280
Long-run average selling price for intermediate product
Incremental cost per unit for completion in division B
Incremental cost per unit in division A
160
170
100
The manager of division B has made the following calculation:
$280
Selling price for final product
Transferred-in cost per unit (market)
Incremental cost per unit for completion
Contribution (loss) on product
$160
170
330
S (50)

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