San Jose Company operates a Manufacturing Division and an Assembly Division. Both divisions are evaluated as profit centers. Assembly buys components from Manufacturing and assembles them for sale. Manufacturing sells many components to third parties in addition to Assembly. Selected data from the two operations follow. Manufacturing Assembly Capacity (units) 408,000 208,000 Sales pricea $ 416 $ 1,340 Variable costsb $ 200 $ 496 Fixed costs $ 40,080,000 $ 24,080,000 a For Manufacturing, this is the price to third parties. b For Assembly, this does not include the transfer price paid to Manufacturing. Suppose Manufacturing is located in Country A with a tax rate of 70 percent and Assembly in Country B with a tax rate of 30 percent. All other facts remain the same. Required: a. Current production levels in Manufacturing are 208,000 units. Assembly requests an additional 48,000 units to produce a special order. What transfer price would you recommend? b. Suppose Manufacturing is operating at full capacity. What transfer price would you recommend? c. Suppose Manufacturing is operating at 384,000 units. What transfer price would you recommend? (Round your answer to 2 decimal places.) a. Optimal transfer price per unit b. Transfer price per unit c. Transfer price per unit
San Jose Company operates a Manufacturing Division and an Assembly Division. Both divisions are evaluated as profit centers. Assembly buys components from Manufacturing and assembles them for sale. Manufacturing sells many components to third parties in addition to Assembly. Selected data from the two operations follow.
| Manufacturing | Assembly | |||||
| Capacity (units) | 408,000 | 208,000 | ||||
| Sales pricea | $ | 416 | $ | 1,340 | ||
| Variable costsb | $ | 200 | $ | 496 | ||
| Fixed costs | $ | 40,080,000 | $ | 24,080,000 | ||
a For Manufacturing, this is the price to third parties.
b For Assembly, this does not include the transfer price paid to Manufacturing.
Suppose Manufacturing is located in Country A with a tax rate of 70 percent and Assembly in Country B with a tax rate of 30 percent. All other facts remain the same.
Required:
a. Current production levels in Manufacturing are 208,000 units. Assembly requests an additional 48,000 units to produce a special order. What transfer price would you recommend?
b. Suppose Manufacturing is operating at full capacity. What transfer price would you recommend?
c. Suppose Manufacturing is operating at 384,000 units. What transfer price would you recommend? (Round your answer to 2 decimal places.)
|
Given ,
Total capacity of Manufacturing department = 408000 units
So ,
If the department is not working in its full capacity , then transfer price will be equal to variable cost till the idle capacity.
If the department is working at its full capacity , then transfer price will be equal to Sales price.
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