XYZ operates two subsidiaries, X and Y. X is a component‐manufacturing subsidiary and Y is an assembly and final product subsidiary. Both subsidiaries produce one type of output only. Subsidiary Y needs one component from subsidiary X for every unit of Product W produced. Subsidiary X transfers to Subsidiary Y all of the components needed to produce Product W. Subsidiary X also sells components on the external market. The following budgeted information is available for each subsidiary: X Y Market price per component $800 Market price per unit of W $1,200 Production costs per component $600 Assembly costs per unit of W $400 Non production fixed costs $1.5 M $1.3 M External demand 10,000 12,000 Capacity 22,000 Taxation rates 25% 30% The production cost per component is 60% variable. The fixed production costs are absorbed based on budgeted output. 1. Assuming if Y will not purchase the component, X can increase its external demand to 20,000. The minimum and maximum transfer prices per unit are? 2. Refer to original data. Assuming market price and full cost are both acceptable transfer prices. The transfer price that will minimize the tax expense of the company as a whole is? By what amount?
XYZ operates two subsidiaries, X and Y. X is a component‐manufacturing subsidiary and Y is an assembly and final product subsidiary. Both subsidiaries produce one type of output only. Subsidiary Y needs one component from subsidiary X for every unit of Product W produced. Subsidiary X transfers to Subsidiary Y all of the components needed to produce Product W. Subsidiary X also sells components on the external market.
The following budgeted information is available for each subsidiary:
|
|
X |
Y |
|
Market price per component |
$800 |
|
|
Market price per unit of W |
|
$1,200 |
|
Production costs per component |
$600 |
|
|
Assembly costs per unit of W |
|
$400 |
|
Non production fixed costs |
$1.5 M |
$1.3 M |
|
External demand |
10,000 |
12,000 |
|
Capacity |
22,000 |
|
|
|
25% |
30% |
The production cost per component is 60% variable. The fixed production costs are absorbed based on budgeted output.
1. Assuming if Y will not purchase the component, X can increase its external demand to 20,000. The minimum and maximum transfer prices per unit are?
2. Refer to original data. Assuming market price and full cost are both acceptable transfer prices. The transfer price that will minimize the tax expense of the company as a whole is? By what amount?
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