Division Y has asked Division X of the same company to supply it with 6,200 units of part L763 this year to use in one of its products.Division Y has received a bid from an outside supplier for the parts at a price of $39 per unit. Division X has the capacity to produce24,800 units of part L763 per year. Division X expects to sell 22,320 units of part L763 to outside customers this year at a price of$41.20 per unit. To fill the order from Division Y, Division X would have to cut back its sales to outside customers. Division X producespart L763 at a variable cost of $31 per unit. The cost of packing and shipping the parts for outside customers is $2 per unit. Thesepacking and shipping costs would not have to be incurred on sales of the parts to Division Y.Required:a. What is the range of transfer prices within which both the Divisions' profits would increase as a result of agreeing to the transfer of6,200 parts this year from Division X to Division Y?Note: Round your final answers to 2 decimal places.Range of transfer prices:< Transfer price <b. Is it in the best interests of the overall company for this transfer to take place?O YesO No

The cost of transferring products, services, or intellectual property between divisions,…

Answered: Range of transfer prices:

Business

Accounting

Range of transfer prices:

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

Division Y has asked Division X of the same company to supply it with 6,200 units of part L763 this year to use in one of its products.
Division Y has received a bid from an outside supplier for the parts at a price of $39 per unit. Division X has the capacity to produce
24,800 units of part L763 per year. Division X expects to sell 22,320 units of part L763 to outside customers this year at a price of
$41.20 per unit. To fill the order from Division Y, Division X would have to cut back its sales to outside customers. Division X produces
part L763 at a variable cost of $31 per unit. The cost of packing and shipping the parts for outside customers is $2 per unit. These
packing and shipping costs would not have to be incurred on sales of the parts to Division Y.
Required:
a. What is the range of transfer prices within which both the Divisions' profits would increase as a result of agreeing to the transfer of
6,200 parts this year from Division X to Division Y?
Note: Round your final answers to 2 decimal places.
Range of transfer prices:
< Transfer price <
b. Is it in the best interests of the overall company for this transfer to take place?
O Yes
O No

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