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)
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Should transfers be made to division B if there is no unused capacity in division A? Is the market price the correct transfer price? Show your computations.
![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)](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F8710dbee-149c-4b1a-ad34-ec526b6df74a%2Fda39a8e5-c70c-43aa-918d-798682a9a257%2Fytps6kr.jpeg&w=3840&q=75)
Transcribed Image Text: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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