Pharoah Industries is a decentralized firm. It has two production centres: Vancouver and Kamloops. Each one is evaluated based on its return on investment. Vancouver has the capacity to manufacture 160,000 units of component TR222. Vancouver's variable costs are $156 per unit. Kamloops uses component TR222 in one of its products. Kamloops adds $96 of variable costs to the component and sells the final product for $460. Consider the following independent situations: Vancouver can sell all 160,000 units of TR222 on the open market at a price of $255 per unit. Kamloops is willing to buy 16,000 of those units. What should the transfer price be? Transfer price $ per unit
Pharoah Industries is a decentralized firm. It has two production centres: Vancouver and Kamloops. Each one is evaluated based on its return on investment. Vancouver has the capacity to manufacture 160,000 units of component TR222. Vancouver's variable costs are $156 per unit. Kamloops uses component TR222 in one of its products. Kamloops adds $96 of variable costs to the component and sells the final product for $460. Consider the following independent situations: Vancouver can sell all 160,000 units of TR222 on the open market at a price of $255 per unit. Kamloops is willing to buy 16,000 of those units. What should the transfer price be? Transfer price $ per unit
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Pharoah Industries is a decentralized firm. It has two production centres: Vancouver and
Kamloops. Each one is evaluated based on its return on investment. Vancouver has the
capacity to manufacture 160,000 units of component TR222. Vancouver's variable costs are
$156 per unit. Kamloops uses component TR222 in one of its products. Kamloops adds $96
of variable costs to the component and sells the final product for $460.
Consider the following independent situations:
Vancouver can sell all 160,000 units of TR222 on the open market at a price of $255 per
unit. Kamloops is willing to buy 16,000 of those units.
What should the transfer price be?
Transfer price
$
per unit
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