Question Content Area In Bombadier Company, Division A has a product that can be sold either to outside customers or to Division B. Information about these divisions is as follows: Case 1 Case 2 Division A: Capacity in units 100,000 100,000 Number of units sold externally 100,000 60,000 Market selling price $90 $75 Variable costs per unit $73 $58 Fixed costs per unit based on capacity $10 $10 Division B: Number of units needed for production 40,000 40,000 Purchase price per unit from external supplier $86 $74 The company uses the opportunity cost approach to transfer pricing. What is the maximum transfer price in Case 2?

Question Content Area In Bombadier Company, Division A has a product that can be sold either to outside customers or to Division B. Information about these divisions is as follows: Case 1 Case 2 Division A: Capacity in units 100,000 100,000 Number of units sold externally 100,000 60,000 Market selling price $90 $75 Variable costs per unit $73 $58 Fixed costs per unit based on capacity $10 $10 Division B: Number of units needed for production 40,000 40,000 Purchase price per unit from external supplier $86 $74 The company uses the opportunity cost approach to transfer pricing. What is the maximum transfer price in Case 2?

Essentials of Business Analytics (MindTap Course List)

2nd Edition

ISBN:9781305627734

Author:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson

Publisher:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson

Chapter12: Integer Linear Optimization_models

Section: Chapter Questions

Problem 6P: Hart Manufacturing makes three products. Each product requires manufacturing operations in three...

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Question Content Area

In Bombadier Company, Division A has a product that can be sold either to outside customers or to Division B. Information about these divisions is as follows:

	Case 1	Case 2
Division A:
Capacity in units	100,000	100,000
Number of units sold externally	100,000	60,000
Market selling price	$90	$75
Variable costs per unit	$73	$58
Fixed costs per unit based on capacity	$10	$10

Division B:
Number of units needed for production	40,000	40,000
Purchase price per unit from external supplier	$86	$74

The company uses the opportunity cost approach to transfer pricing. What is the maximum transfer price in Case 2?

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Division X makes a part that it sells to customers outside of the company. Data concerning this part appear below: Selling price to outside customers.... Variable cost per unit. Total fixed costs....... Capacity in units. $50 $30 Select one: O a. $50 O b. $49 O c. $46 O d. $30 $400,000 25,000 Division Y of the same company would like to use the part manufactured by Division X in one of its products. Division Y currently purchases a similar part made by an outside company for $49 per unit and would substitute the part made by Division X. Division Y requires 5,000 units of the part each period. Division X has ample excess capacity to handle all of Division Y's needs without any increase in fixed costs and without cutting into outside sales. According to the formula in the text, what is the lowest acceptable transfer price from the standpoint of the selling division?
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XYZ Company has two divisions, X and Y. X makes product X1 and Y makes product Y+. Every unit of product Y+ requires one unit of product X1 as a component. Y purchases most of its X1 requirement from X although sometimes it makes purchases from outside suppliers. Relevant details of products X1 and Y+ are tabulated as follows: Product X1 Product Y+ Established selling price $30 $50 Variable Cost Per Unit - Mat 8 5 Transfer price 30 Labor 5 3 Overhead 2 2 Total Variable Cost 15 40 Fixed Costs 500,000 225,000 Annual Outside Demand 100,000 25,000 Plant Capacity 130,000 30,000 Investment in Divisions: (X) $ 6,625,000 (Y) $ 1,250,000 Division Y is currently achieving an ROI below target. It’s manager blames this on the high transfer price of product X1. The manager of Division X claims that the current transfer price ($30) is appropriate since ‘it is determined by the market’. The manager of division…
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