CHS is a large multidivision firm. One division, Health Services, is well known Inside CHS for its efficient Informationtechnology (IT). A smaller division, Optics, has approached Health Services with a proposal that it provide IT support in theform of machine time for some of Optics's billing and administrative work.After an analysis of the demands that Optics would place on the system, the IT manager of Health Services notes thatHealth Services would have to lease a new server because of the additional load. The lease rates for the current serverare a fixed annual lease of $3,280 and it averages machine time of 2,900 hours annually. The new server leases for anannual rate of $5,040. Because the new server is a faster machine, Health Services can complete its current requirementsIn only 2,040 hours. The work for Optics is estimated to be 1,110 hours.In addition to leasing a new server, there are two other changes Health Services would have to make in IT. First, it will haveto upgrade its server support position. The IT manager estimates that it will cost an additional $20,500 per year to get anIndividual with the necessary advanced training. In addition, Health Services has a contract for service from the machinevendor. The support contract is a fixed-price contract of $9.50 per hour of machine usage. The current lease contract canbe canceled at no cost of Health Services leases a more expensive machine.Suppose Health Services could sell time on the machine to other companies in the area on a per-hour basis. Further, It cansell all the time available for $32 per hour.Required:a. What is the optimal transfer price rule Health Services should use to charge Optics?b. Suppose Optics uses 1,110 hours on the new machine. What is the average cost per hour Optics would pay using therule you developed in requirement (a)?c. Suppose Optics uses 108 hours on the new machine. What is the average cost per hour Optics would pay using the ruleyou developed in requirement (a/?a. Transfer priceb.Average costAverage costper hourper hourper hour

A lease is a contract under which lessee gets the right to use an asset by the lessor in exchange…

Required: a. What is the optimal transfer price rule Health Services should use to charge Optics? b. Suppose Optics uses 1,110 hours on the new machine. What is the average cost per hour Optics would pay using the rule you developed in requirement (a)? c. Suppose Optics uses 108 hours on the new machine. What is the average cost per hour Optics would pay using the rule you developed in requirement (a??

Required: a. What is the optimal transfer price rule Health Services should use to charge Optics? b. Suppose Optics uses 1,110 hours on the new machine. What is the average cost per hour Optics would pay using the rule you developed in requirement (a)? c. Suppose Optics uses 108 hours on the new machine. What is the average cost per hour Optics would pay using the rule you developed in requirement (a??

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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