Rapid Industries has multiple divisions. One division, Iron Products, makes a component that another division, Austin, is currently purchasing on the open market. Iron Products currently has a capacity to produce 495,000 components at a variable cost of $6.50 and a full cost of $9.50. Iron Products has outside sales of 446,000 components at a price of $13.50 per unit. Austin currently purchases 55,000 units from an outside supplier at a price of $11.00 per unit. Assume that Austin desires to use a single supplier for it component. Required: a. What will be the effect on Rapid Industries' operating profit if the transfer is made internally? Assume the 55.000 units Austin needs are either purchased 100% internally or 100% externally. b. What is the minimum transfer price? c. What is the maximum transfer price?

Rapid Industries has multiple divisions. One division, Iron Products, makes a component that another division, Austin, is currently purchasing on the open market. Iron Products currently has a capacity to produce 495,000 components at a variable cost of $6.50 and a full cost of $9.50. Iron Products has outside sales of 446,000 components at a price of $13.50 per unit. Austin currently purchases 55,000 units from an outside supplier at a price of $11.00 per unit. Assume that Austin desires to use a single supplier for it component. Required: a. What will be the effect on Rapid Industries' operating profit if the transfer is made internally? Assume the 55.000 units Austin needs are either purchased 100% internally or 100% externally. b. What is the minimum transfer price? c. What is the maximum transfer price?

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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