Sam's X Division is currently purchasing a part from an outside supplier. The company's Y Division, which has excess capacity, makes and sells this part for external customers at a variable cost of P22 and a selling price of P34. If Y begins sales to X, it (1) will use the general transfer-pricing rule and (2) will be able to reduce variable cost on internal transfers by P2. If sales to outsiders will not be affected, Y would establish a transfer p

Sam's X Division is currently purchasing a part from an outside supplier. The company's Y Division, which has excess capacity, makes and sells this part for external customers at a variable cost of P22 and a selling price of P34. If Y begins sales to X, it (1) will use the general transfer-pricing rule and (2) will be able to reduce variable cost on internal transfers by P2. If sales to outsiders will not be affected, Y would establish a transfer p

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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When negotlating a transfer price, whlch prlce Is most acceptable to the selling divislon if they are operating with Idle capacity? Multiple Choicel the price must cover at least the variable manufacturing costs of the selling division the price must be less than the variable manufacturing costs of the selling division the price must cover at least the variable manufacturing costs of the buying division the price must cover at least the selling price to outside customers
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Valmont Company has developed a new industrial piece of equipment called the XP-200. The company is considering two methods of establishing a selling price for the XP-200-absorption cost-plus pricing and value-based pricing. Valmont's cost accounting system reports an absorption unit product cost for XP-200 of $9,300. Its markup percentage on absorption cost is 85%. The company's marketing managers have expressed concerns about the use of absorption cost-plus pricing because it seems to overlook the fact that the XP-200 offers superior performance relative to the comparable piece of equipment sold by Valmont's primary competitor. More specifically, the XP-200 can be used for 18,000 hours before replacement. It only requires $1,900 of preventive maintenance during its useful life and it consumes $165 of electricity per 900 hours used. These figures compare favorably to the competing piece of equipment that sells for $18,000, needs to be replaced after 9,000 hours of use, requires $3,800…
Valmont Company has developed a new industrial piece of equipment called the XP-200. The company is considering two methods of establishing a selling price for the XP-200-absorption cost-plus pricing and value -based pricing. Valmont's cost accounting system reports an absorption unit product cost for XP-200 of $ 9,400. Its markup percentage on absorption cost is 85%. The company's marketing managers have expressed concerns about the use of absorption cost- plus pricing because it seems to overlook the fact that the XP-200 offers superior performance relative to the comparable piece of equipment sold by Valmont's primary competitor. More specifically, the XP-200 can be used for 19,000 hours before replacement. It only requires $2,000 of preventive maintenance during its useful life and it consumes $170 of electricity per 950 hours used. These figures compare favorably to the competing piece of equipment that sells for $19,000, needs to be replaced after 9, 500 hours of use, requires…
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Using the formula in the text, if the lowest acceptable transfer price from the viewpoint of the selling division is $95 and the opportunity cost per unit on outside sales is $38, then the variable cost per unit must be:
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