Vaughn treats its divisions as profit centers and allows division managers to choose whether to sell or to buy from internal division. Corporate policy requires that all interdivisional sales and purchases be transferred at variable cost. Gamma Division of Vaughn Corp. produces electric motors. This product is currently sold to outside customers but is needed by Omega, another division of Vaughn. Gamma Division's estimated sales and standard cost data for the year ended December 31, based on practical capacity of 60,000 units are as follows: P 7,200,000 3, 300,000 P 3,900,000 1,075,000 P 2,825,000 Sales Less: Variables Cost Contribution Margin Fixed Cost Operating Income Gamma has an opportunity to sell 12,000 units to Omega. Omega can purchase the units it needs from outside supplier for P92 each. Required: Assuming that Gamma can normally sell 57,000 units to outsider customers 1. compute for the minimum transfer price acceptable to Gamma. 2. Compute for the maximum transfer price.
Vaughn treats its divisions as profit centers and allows division managers to choose whether to sell or to buy from internal division. Corporate policy requires that all interdivisional sales and purchases be transferred at variable cost. Gamma Division of Vaughn Corp. produces electric motors. This product is currently sold to outside customers but is needed by Omega, another division of Vaughn. Gamma Division's estimated sales and standard cost data for the year ended December 31, based on practical capacity of 60,000 units are as follows: P 7,200,000 3, 300,000 P 3,900,000 1,075,000 P 2,825,000 Sales Less: Variables Cost Contribution Margin Fixed Cost Operating Income Gamma has an opportunity to sell 12,000 units to Omega. Omega can purchase the units it needs from outside supplier for P92 each. Required: Assuming that Gamma can normally sell 57,000 units to outsider customers 1. compute for the minimum transfer price acceptable to Gamma. 2. Compute for the maximum transfer price.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Vaughn treats its divisions as profit centers and allows division managers to choose whether to sell or to
buy from internal division. Corporate policy requires that all interdivisional sales and purchases be
transferred at variable cost.
Gamma Division of Vaughn Corp. produces electric motors. This product is currently sold to outside
customers but is needed by Omega, another division of Vaughn. Gamma Division's estimated sales and
standard cost data for the year ended December 31, based on practical capacity of 60,000 units are as
follows:
P 7,200,000
3, 300,000
P 3,900,000
1,075,000
P 2,825,000
Sales
Less: Variables Cost
Contribution Margin
Fixed Cost
Operating Income
Gamma has an opportunity to sell 12,000 units to Omega. Omega can purchase the units it needs from
outside supplier for P92 each.
Required:
Assuming that Gamma can normally sell 57,000 units to outsider customers
1. compute for the minimum transfer price acceptable to Gamma.
2. Compute for the maximum transfer price.
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