Swan Company has two divisions, Hill and Paradise. Hill produces a unit that Paradise could use in its production. Paradise currently is purchasing5,600 units from an outside supPplier for $62. Hill is operating at less than full capacity and has variable costs of $36.80 per unit. The full cost tomanufacture the unit is $49.40. Hill currently sells 450,600 units at a selling price of $67.60. How much will Paradise save by not purchasing fromoutside if a transfer price of $48 is agreed upon?Multiple Choice$78,400$56,600$7,600 more cost$28,600

Solution: Paradise will save = Outside purchase price - Transfer price = 62 - 48 = $14 per unit Total amount saved = 14* 5600 = $78,400 Hence first option is correct.

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Swan Company has two divisions, Hill and Paradise. Hil 5,600 units from an outside supplier for $62. Hill is ope manufacture the unit is $49.40. Hill currently sells 450, outside if a transfer price of $48 is agreed upon?

Swan Company has two divisions, Hill and Paradise. Hil 5,600 units from an outside supplier for $62. Hill is ope manufacture the unit is $49.40. Hill currently sells 450, outside if a transfer price of $48 is agreed upon?

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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