XZY Co. has several divisions. Division A produces and sells a gadget which it sold to the outside market at a price of $97. Division A's current capacity is 90,000 gadgets per year but can only sell 66,000 gadgets annually. The cost to produce a gadget (based on capacity) is the following: Direct materials Direct labour Variable overhead Fixed overhead $ $ $ $ $ 22 18 14 16 70 Division B currently uses a gadget in one of their products and purchases 38,000 gadgets annually from an external supplier at a cost of $90 per unit. Required: Assume that XZY Co. is contemplating a transfer of 38,000 gadgets from Division A to Division B. a) What is the minimum transfer price? b) What is the maximum transfer price? c) What is the overall net benefit to XZY Co. if a transfer takes place between the two divisions? d) Assume that the two division agree on a transfer price of $82 per gadget. What is the net benefit to each of the two divisions?

XZY Co. has several divisions. Division A produces and sells a gadget which it sold to the outside market at a price of $97. Division A's current capacity is 90,000 gadgets per year but can only sell 66,000 gadgets annually. The cost to produce a gadget (based on capacity) is the following: Direct materials Direct labour Variable overhead Fixed overhead $ $ $ $ $ 22 18 14 16 70 Division B currently uses a gadget in one of their products and purchases 38,000 gadgets annually from an external supplier at a cost of $90 per unit. Required: Assume that XZY Co. is contemplating a transfer of 38,000 gadgets from Division A to Division B. a) What is the minimum transfer price? b) What is the maximum transfer price? c) What is the overall net benefit to XZY Co. if a transfer takes place between the two divisions? d) Assume that the two division agree on a transfer price of $82 per gadget. What is the net benefit to each of the two divisions?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Similar questions

Edgerron Company is able to produce two products, G and B, with the same machine in its factory. The following information is available. Product G Product B Selling price per unit $ 200 $ 230 Variable costs per unit 85 138 Contribution margin per unit $ 115 $ 92 Machine hours to produce 1 unit 0.4 hours 1.0 hours Maximum unit sales per month 650 units 250 units The company presently operates the machine for a single eight-hour shift for 22 working days each month. Management is thinking about operating the machine for two shifts, which will increase its productivity by another eight hours per day for 22 days per month. This change would require $11,500 additional fixed costs per month. (Round hours per unit answers to 1 decimal place. Enter operating losses, if any, as negative values.)
Zion Manufacturing had always made its components in-house. However, Bryce Component Works had recently offered to supply one component, K2, at a price of $13 each. Zion uses 4,400 units of Component K2 each year. The cost per unit of this component is as follows: Direct materials Direct labor Variable overhead Fixed overhead Total $7.84 2.84 1.67 4.00 $16.35 The fixed overhead is an allocated expense; none of it would be eliminated if production of Component K2 stopped. Required: 1. What are the alternatives facing Zion Manufacturing with respect to production of Component K2? 2. List the relevant costs for each alternative. If required, round your answers to the nearest cent. Total Relevant Cost Make per unit Buy per unit Differential Cost to Make per unit
The grinding machines are potentially the constraint in the production facility. A total of 52,400 minutes are available per month on these machines. Direct labor is a variable cost in this company. How many minutes of grinding machine time would be required to satisfy demand for all four products? A.23,940 B.5,200 C.52,400 D.17,190
! Required information [The following information applies to the questions displayed below.] A company produces two products. Product 1 sells for $140 and Product 2 sells for $100. Each product uses only one type of raw material that costs $8 per pound. The company has the capacity to annually produce 106,000 units of each product. Its average cost per unit for each product at this level of activity are given below: Product Product 1 2 Direct materials $ 32 $ 16 Direct labor 24 19 Variable manufacturing overhead Traceable fixed manufacturing overhead Variable selling expenses Common fixed expenses 10 20 22 16 12 19 14 Total cost per unit $121 $ 92 The company considers its traceable fixed manufacturing overhead to be avoidable, whereas its common fixed expenses are unavoidable and have been allocated to products based on sales dollars. Consider each of the following questions separately. 3. Assume the company normally produces and sells 94,000 unit of Product 2 per year. What is the…
Saved Jefferson, Inc. produces two different products (Product 5 and Product Z) using two different activities: Machining, which uses machine hours as an activity driver, and Inspection, which uses number of batches as an activity driver. The cost of Machining is $324,000, while the cost of Inspection is $37000. The activity drivers are used as follows: Product 5 Product I Total 5,400 70 Machine hours 3,240 2,160 Number of batches 28 42 What proportion of Inspection activity is used by Product Z? Multiple Cholce 68% 32% 60%
Vikram bhai
Please help me with this question
Vishnu