**Required Information***The following information applies to the questions displayed below.*In each of the cases below, assume Division X has a product that can be sold either to outside customers or to Division Y of the same company for use in its production process. The managers of the divisions are evaluated based on their divisional profits.| | Case A | Case B ||-------------------|---------|---------|| **Division X:** | | || Capacity in units | 103,000 | 95,000 || Number of units being sold to outside customers | 103,000 | 77,000 || Selling price per unit to outside customers | $59 | $29 || Variable costs per unit | $29 | $15 || Fixed cost per unit (based on capacity) | $10 | $5 || **Division Y:** | | || Number of units needed for production | 18,000 | 18,000 || Purchase price per unit now being paid to an outside supplier | $53 | $30 |**Required:**1. Refer to the data in Case A above. Assume in this case that $4 per unit in variable selling costs can be avoided on intracompany sales.2. What is the lowest acceptable transfer price from the perspective of the selling division?3. What is the highest acceptable transfer price from the perspective of the buying division?4. If there is a range of acceptable transfer prices (if any) between the two divisions if the managers are free to negotiate and make decisions on their own, will a transfer probably take place?

Answer a: Since there is no additional capacity exists minimum acceptable transfer price will be…

[The following information applies to the questions displayed below.] In each of the cases below, assume Division X has a product that can be sold either to outside customers or to Division Y of the same company for use in its production process. The managers of the divisions are evaluated based on their divisional profits. Case B Division X: Capacity in units Number of units being sold to outside customers Selling price per unit to outside customers Variable costs per unit Fixed costs per unit (based on capacity) 103,000 103,000 59 $ 29 $ 95,000 77,000 29 %24 15 10 Division Y: Number of units needed for production Purchase price per unit now being paid to an outside supplier 18,000 18,000 53 $ 30 Required: 1. Refer to the data in case A above. Assume in this case that $4 per unit in variable selling costs can be avoided on intracompany sales. a. What is the lowest acceptable transfer price from the perspective of the selling division? b. What is the highest acceptable transfer price from the perspective of the buying division? c. What is the range of acceptable transfer prices (if any) between the two divisions? If the managers are free to negotiate and make decisions on their own, will a transfer probably take place?

[The following information applies to the questions displayed below.] In each of the cases below, assume Division X has a product that can be sold either to outside customers or to Division Y of the same company for use in its production process. The managers of the divisions are evaluated based on their divisional profits. Case B Division X: Capacity in units Number of units being sold to outside customers Selling price per unit to outside customers Variable costs per unit Fixed costs per unit (based on capacity) 103,000 103,000 59 $ 29 $ 95,000 77,000 29 %24 15 10 Division Y: Number of units needed for production Purchase price per unit now being paid to an outside supplier 18,000 18,000 53 $ 30 Required: 1. Refer to the data in case A above. Assume in this case that $4 per unit in variable selling costs can be avoided on intracompany sales. a. What is the lowest acceptable transfer price from the perspective of the selling division? b. What is the highest acceptable transfer price from the perspective of the buying division? c. What is the range of acceptable transfer prices (if any) between the two divisions? If the managers are free to negotiate and make decisions on their own, will a transfer probably take place?

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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