The Components Division produces a part that is used by the Goods Division. The cost of manufacturing the part is as follows: Direct materials $10 Direct labor 2 Variable overhead 3 Fixed overhead* Total cost $20 *Based on a practical volume of 200,000 parts. Other costs incurred by the Components Division are as follows: Fixed selling and administrative Variable selling $500,000 $1 per unit The part usually sells for between $28 and $30 in the external market. Currently, the Components Division is selling it to external customers for $29. The division is ca- pable of producing 200,000 units of the part per year; however, because of a weak economy, only 150,000 parts are expected to be sold during the coming year. The vari- able selling expenses are avoidable if the part is sold internally. The Goods Division has been buying the same part from an external supplier for $28. It expects to use 50,000 units of the part during the coming year. The manager of the Goods Division has offered to buy 50,000 units from the Components Division for $18 per unit. Required: 1. Determine the minimum transfer price that the Components Division would ассept. 2. Determine the maximum transfer price that the manager of the Goods Division would pay. 3. Should an internal transfer take place? Why or why not? If you were the manager of the Components Division, would you sell the 50,000 components for $18 each? Explain.
The Components Division produces a part that is used by the Goods Division. The cost of manufacturing the part is as follows: Direct materials $10 Direct labor 2 Variable overhead 3 Fixed overhead* Total cost $20 *Based on a practical volume of 200,000 parts. Other costs incurred by the Components Division are as follows: Fixed selling and administrative Variable selling $500,000 $1 per unit The part usually sells for between $28 and $30 in the external market. Currently, the Components Division is selling it to external customers for $29. The division is ca- pable of producing 200,000 units of the part per year; however, because of a weak economy, only 150,000 parts are expected to be sold during the coming year. The vari- able selling expenses are avoidable if the part is sold internally. The Goods Division has been buying the same part from an external supplier for $28. It expects to use 50,000 units of the part during the coming year. The manager of the Goods Division has offered to buy 50,000 units from the Components Division for $18 per unit. Required: 1. Determine the minimum transfer price that the Components Division would ассept. 2. Determine the maximum transfer price that the manager of the Goods Division would pay. 3. Should an internal transfer take place? Why or why not? If you were the manager of the Components Division, would you sell the 50,000 components for $18 each? Explain.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
100%
can u help to solve question 1, 2 and 3 please?
Transcribed Image Text:The Components Division produces a part that is used by the Goods Division. The
cost of manufacturing the part is as follows:
Direct materials
$10
Direct labor
2
Variable overhead
Fixed overhead*
3
5
Total cost
$20
*Based on a practical volume of 200,000 parts.
Other costs incurred by the Components Division are as follows:
Fixed selling and administrative
Variable selling
$500,000
$1 per unit
The part usually sells for between $28 and $30 in the external market. Currently,
the Components Division is selling it to external customers for $29. The division is ca-
pable of producing 200,000 units of the part per year; however, because of a weak
economy, only 150,000 parts are expected to be sold during the coming year. The vari-
able selling expenses are avoidable if the part is sold internally.
The Goods Division has been buying the same part from an external supplier for
$28. It expects to use 50,000 units of the part during the coming year. The manager
of the Goods Division has offered to buy 50,000 units from the Components Division
for $18 per unit.
Required:
1. Determine the minimum transfer price that the Components Division would
аcсept.
2. Determine the maximum transfer price that the manager of the Goods Division
would pay.
3. Should an internal transfer take place? Why or why not? If you were the manager
of the Components Division, would you sell the 50,000 components for $18
cach? Explain.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 3 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education