The Cabinet Division of the M.T. Woodhead Company produces basic posts which can be sold to outside customers or sold to the Kitchen Division of the M.T. Woodhead Company. Last Year the Kitchen Division bought all of its 25,000 posts from Cabinet at P1.50 each. The following data are available for last year's activities of the Cabinet Division: Capacity in units 300,000 posts Selling price per Cabinet to outside customers P1.75 Variable costs per post P0.90 Fixed costs, total P150,000 Suppose the transfers of posts to the Kitchen Division cut into sales to outside customers by 10,000 units. What is the lowest transfer price that would not reduce the profits of the Cabinet Division?
The Cabinet Division of the M.T. Woodhead Company produces basic posts which can be sold to outside customers or sold to the Kitchen Division of the M.T. Woodhead Company. Last Year the Kitchen Division bought all of its 25,000 posts from Cabinet at P1.50 each. The following data are available for last year's activities of the Cabinet Division: Capacity in units 300,000 posts Selling price per Cabinet to outside customers P1.75 Variable costs per post P0.90 Fixed costs, total P150,000 Suppose the transfers of posts to the Kitchen Division cut into sales to outside customers by 10,000 units. What is the lowest transfer price that would not reduce the profits of the Cabinet Division?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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The Cabinet Division of the M.T. Woodhead Company produces basic posts which can be sold to outside customers or sold to the Kitchen Division of the M.T. Woodhead Company. Last Year the Kitchen Division bought all of its 25,000 posts from Cabinet at P1.50 each. The following data are available for last year's activities of the Cabinet Division:
|
Capacity in units |
300,000 posts |
|
Selling price per Cabinet to outside customers |
P1.75 |
|
Variable costs per post |
P0.90 |
|
Fixed costs, total |
P150,000 |
Suppose the transfers of posts to the Kitchen Division cut into sales to outside customers by 10,000 units. What is the lowest transfer price that would not reduce the profits of the Cabinet Division?
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