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Range of transfer prices:

Range of transfer prices:

FINANCIAL ACCOUNTING
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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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
Transcribed Image Text: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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