**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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Exercise 15-34 (Algo) Evaluate Transfer Pricing System: Negotiated Rates (LO 15-2, 3) Tops Corporation is organized into two divisions, Manufacturing and Marketing. Both divisions are considered to be profit centers and the two division managers are evaluated in large part on divisional income. The company makes a single product. It is fabricated in Manufacturing and then packaged and sold in Marketing. There is no intermediate market for the product. The monthly income statements, in thousands of dollars, for the two divisions follow. Production and sales amounted to 15,000 units. Revenues Variable costs Contribution margin Fixed costs Manufacturing $4,500 3,900 $. Marketing $15, 000 6,700 $ 8,300 600 300 800 Divisional profit $. 300 $ 7,500 Assume there is no speclal order pending. Required: a. What transfer price would you recommend for Tops Corporation? b. Using your recommended transfer price, what will be the income of the two divisions, assuming monthly production and sales of…
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Hi, I also need help finding the lowest acceptable transfer price as well as the highest acceptable transfer price. thanks
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Carol Components operates a Production Division and a Packaging Division. Both divisions are evaluated as profit centers. Packaging buys components from Production and assembles them for sale. Production sells many components to third parties in addition to Packaging. Selected data from the two operations follow: Capacity (units) Sales price Variable costsb Fixed costs a For Production, this is the price to third parties. b For Packaging, this does not include the transfer price paid to Production. Suppose Production is located in Country A with a tax rate of 30 percent and Distribution in Country B with a tax rate of 10 percent. All other facts remain the same. a. Optimal transfer price b. Transfer price c Transfer price Required: a. Current output in Production is 25,300 units. Packaging requests an additional 5,960 units to produce a special order. What transfer price would you recommend? to search b. Suppose Production is operating at full capacity. What transfer price would you…
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