Transfer Pricing Wiring used by the Appliance Division of Childs Manufacturing is currently purchased from outside suppliers at a cost of $275 per unit. However, the same materials are available from the Electronic Division. The Electronic Division has unused capacity and can produce the materials needed by the Appliance Division at a variable cost of $228 per unit. Assume that a transfer price of $261 has been established and that 23,800 units of materials are transferred, with no reduction in the Electronic Division's current sales. a. How much would Childs Manufacturing's total operating income increase? $fill in the blank 1 b. How much would the Appliance Division's operating income increase? $fill in the blank 2 c. How much would the Electronic Division's operating income increase?
Transfer Pricing
Wiring used by the Appliance Division of Childs Manufacturing is currently purchased from outside suppliers at a cost of $275 per unit. However, the same materials are available from the Electronic Division. The Electronic Division has unused capacity and can produce the materials needed by the Appliance Division at a variable cost of $228 per unit.
Assume that a transfer price of $261 has been established and that 23,800 units of materials are transferred, with no reduction in the Electronic Division's current sales.
a. How much would Childs Manufacturing's total operating income increase?
| $fill in the blank 1 |
b. How much would the Appliance Division's operating income increase?
| $fill in the blank 2 |
c. How much would the Electronic Division's operating income increase?
| $fill in the blank 3 |
d. If the negotiated price approach is used, what would be the range of acceptable transfer prices and why?
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
