Suppose the manager of division A has the option of (a) cutting the external price to $156, with the certainty that sales will rise to 2,000 units, or (b) maintaining the external price of $160 for the 1,200 units and transferring the 800 units to division B at a price that would produce the same operating income for division A. What transfer price would produce the same operating income for division A? Is that price consistent with that recommended by the general guideline in the chapter so that the resulting decision would be desirable for the company as a whole? 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 subassemblyand the final product. Each division has been designated as a profit center. The transfer price for thesubassembly has been set at the long-run average market price. The following data are available foreach division:Selling price for final product$280Long-run average selling price for intermediate productIncremental cost per unit for completion in division BIncremental cost per unit in division A160170100The manager of division B has made the following calculation:$280Selling price for final productTransferred-in cost per unit (market)Incremental cost per unit for completionContribution (loss) on product$160170330S (50)

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Answered: Pertinent transfer price, perfect and…

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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Suppose the manager of division A has the option of (a) cutting the external price to $156, with the certainty that sales will rise to 2,000 units, or (b) maintaining the external price of $160 for the 1,200 units and transferring the 800 units to division B at a price that would produce the same operating income for division A. What transfer price would produce the same operating income for division A? Is that price consistent with that recommended by the general guideline in the chapter so that the resulting decision would be desirable for the company as a whole?

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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