1.
Identify the transfer price and explain whether Division A and Division T would choose to transfer at that price or not.
2.
Identify the division that sets the minimum transfer price, and the price amount. Identify the division that sets the maximum transfer price, and the price amount. Explain whether Division A and Division T would choose to transfer somewhere in the bargaining range.
3.
In the given situation, identify the division that sets the minimum transfer price, and the price amount. Identify the division that sets the maximum transfer price, and the price amount. Explain whether Division A and Division T would choose to transfer somewhere in the bargaining range.
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Chapter 10 Solutions
Cornerstones of Cost Management (Cornerstones Series)
- Carltons Kitchens makes two types of pasta makers: Strands and Shapes. The company expects to manufacture 70,000 units of Strands, which has a per-unit direct material cost of $10 and a per-unit direct labor cost of $60. It also expects to manufacture 30.000 units of Shapes, which has a per-unit material cost of $15 and a per-unit direct labor cost of $40. It is estimated that Strands will use 140,000 machine hours and Shapes will require 60,000 machine hours. Historically, the company has used the traditional allocation method and applied overhead at a rate of $21 per machine hour. It was determined that there were three cost pools, and the overhead for each cost pool is shown: The cost driver for each cost pool and its expected activity is shown: A. What is the per-unit cost for each product under the traditional allocation method? B. What is the per-unit cost for each product under ABC costing?arrow_forwardComputador has a manufacturing plant in Des Moines that has the theoretical capability to produce 243,000 laptops per quarter but currently produces 91,125 units. The conversion cost per quarter is 7,290,000. There are 60,750 production hours available within the plant per quarter. In addition to the processing minutes per unit used, the production of the laptops uses 10 minutes of move time, 20 minutes of wait time, and 5 minutes of rework time. (All work is done by cell workers.) Required: 1. Compute the theoretical and actual velocities (per hour) and the theoretical and actual cycle times (minutes per unit produced). 2. Compute the ideal and actual amounts of conversion cost assigned per laptop. 3. Calculate MCE. How does MCE relate to the conversion cost per laptop?arrow_forwardGuthrie Generators manufactures a solenoid that it uses in several of its products. Management is considering whether to continue manufacturing the solenoids or to buy them from an outside source. The following information is available: 1. The company needs 20,000 solenoids per year. The solenoids can be purchased from an outside supplier at a cost of $15 per unit. 2. The unit cost of manufacturing the solenoids is $20, computed as follows: Direct materials Direct labor Factory overhead: Variable Fixed Total manufacturing costs Cost per unit ($400,000 ÷ 20,000 units) 3. If the company decides not to manufacture the solenoids, it will eliminate all of the raw materials and direct labor costs but only 75 percent of the variable factory overhead costs. 4. If the solenolds are purchased from the outside source, machinery used in the production of solenoids will be sold at its book value. Accordingly, no gain or loss will be recognized. The sale of this machinery would also eliminate $5,000…arrow_forward
- Carreker, Inc., has a number of divisions, including the Alamosa Division, producer of surgical blades, and the Tavaris Division, a manufacturer of medical instruments. Alamosa Division produces a 2.6 cm steel blade that can be used by Tavaris Division in theproduction of scalpels. The market price of the blade is $21. Cost information for the blade is: Variable product cost $ 9.70Fixed cost 5.50Total product cost $15.20 Tavaris needs 15,000 units of the 2.6 cm blade per year. Alamosa Division is at full capacity(90,000 units of the blade).Required:1. If Carreker, Inc., has a transfer pricing policy that requires transfer at market price, whatwould the transfer price be? Do you suppose that Alamosa and Tavaris divisions wouldchoose to transfer at that price? 2. Now suppose that Carreker, Inc., allows negotiated transfer pricing and that Alamosa Divi-sion can avoid $1.75 of selling and distribution expense by selling to Tavaris Division. Which division sets the minimum transfer price,…arrow_forwardBostonian Inc. has a number of divisions, including the Delta Division and the Listen Now Division. The Listen Now Division owns and operates a line of MP3 players. Each year, the Listen Now Division purchases component AZ in order to manufacture the MP3 players. Currently, it purchases this component from an outside supplier for $6.50 per component. The manager of the Delta Division has approached the manager of the Listen Now Division about selling component AZ to the Listen Now Division. The full product cost of component AZ is $3.10. The Delta Division can sell all of the component AZs it makes to outside companies for $6.50. The Listen Now Division needs 18,000 component AZs per year; the Delta Division can make up to 60,000 components per year. Required: A. Which division sets the maximum transfer price? Which division sets the minimum transfer price? Maximum Minimum B. Suppose the company policy is that all transfer take place at full cost. What is the transfer…arrow_forwardTriple X Company manufactures and sells refrigerators. It makes some of the parts for the refrigerators and purchases others. The engineering department believes it might be possible to cut costs by manufacturing one of the parts currently being purchased for $8.25 each. The firm uses 100,000 of these parts each year. The accounting department compiles the followinglist of costs based on engineering estimates:Fixed costs will increase by $50,000.Labor costs will increase by $125,000.Factory overhead, currently running $500,000 per year, may be expected to increase 12 percent. Raw materials used to make the part will cost $600,000.Given the preceding estimates, should Triple X make the part or continue to buy it?arrow_forward
- Fyodor Corporation has a Parts Division that does work for other Divisions in the company as well as for outside customers. The company's Machine Division has asked the Parts Division to provide it with 9,600 special parts each year. The special parts would require $39 per unit in variable production costs. The Machine Division has a bid from an outside supplier for the special parts at $55.50 per unit. In order to have time and space to produce the special part, the Parts Division would have to cut back production of another part-the QR4 that it presently is producing. The QR4 sells for $76 per unit and requires $38 per unit in variable production costs, Packaging and shipping costs of the QR4 are $2 per unit. Packaging and shipping costs for the new special part would be only $0.50 per unit. The Parts Division is now producing and selling 48,000 units of the QR4 each year, Production and sales of the QR4 would drop by 5% if the new special part is produced for the Machine Division.…arrow_forwardFyodor Corporation has a Parts Division that does work for other Divisions in the company as well as for outside customers. The company's Machine Division has asked the Parts Division to provide it with 6,000 special parts each year. The special parts would require $21 per unit in variable production costs. The Machine Division has a bid from an outside supplier for the special parts at $31.20 per unit. In order to have time and space to produce the special part, the Parts Division would have to cut back production of another part-the QR4 that it presently is producing. The QR4 sells for $40 per unit and requires $20 per unit in variable production costs. Packaging and shipping costs of the QR4 are $2 per unit. Packaging and shipping costs for the new special part would be only $0.50 per unit. The Parts Division is now producing and selling 30,000 units of the QR4 each year. Production and sales of the QR4 would drop by 5% if the new special part is produced for the Machine Division.…arrow_forwardFyodor Corporation has a Parts Division that does work for other Divisions in the company as well as for outside customers. The company's Machine Division has asked the Parts Division to provide it with 6,800 special parts each year. The special parts would require $25 per unit in variable production costs. The Machine Division has a bid from an outside supplier for the special parts at $36.60 per unit. In order to have time and space to produce the special part, the Parts Division would have to cut back production of another part-the QR4 that it presently is producing. The QR4 sells for $48 per unit, and requires $24 per unit in variable production costs. Packaging and shipping costs of the QR4 are $2 per unit. Packaging and shipping costs for the new special part would be only $0.50 per unit. The Parts Division is now producing and selling 34,000 units of the QR4 each year. Production and sales of the QR4 would drop by 5% if the new special part is produced for the Machine…arrow_forward
- Guthrie Generators manufactures a solenoid that it uses in several of its products. Management is considering whether to continue manufacturing the solenoids or to buy them from an outside source. The following information is available. The company needs 18,000 solenoids per year. The solenoids can be purchased from an outside supplier at a cost of $14 per unit. The unit cost of manufacturing the solenoids is $20, computed as follows. Direct materials $ 162,000 Direct labor 36,000 Factory overhead: Variable 72,000 Fixed 90,000 Total manufacturing costs $ 360,000 Cost per unit ($360,000 ÷ 18,000 units) $ 20 If the company decides not to manufacture the solenoids, it will eliminate all of the raw materials and direct labor costs, but will eliminate only 60 percent of the variable factory overhead costs. If the solenoids are purchased from the outside source, machinery used in the production of solenoids will be sold at its…arrow_forwardCrane Company manufactures and sells high-priced motorcycles. The Engine Division produces and sells engines to other motorcycle companies and internally to the Production Division. It has been decided that the Engine Division will sell 10000 units to the Production Division at 1050 a unit. The Engine Division, currently operating at capacity, has a unit sales price of $1550 and unit variable costs and fixed costs of $1050 and $500, respectively. The Production Division is currently paying $1400 per unit to an outside supplier. $60 per unit can be saved on internal sales from reduced selling expenses.What is the minimum transfer price that the Engine Division should accept? $1490 $1550 $500 $1400arrow_forwardFyodor Corporation has a Parts Division that does work for other Divisions in the company as well as for outside customers. The company's Machine Division has asked the Parts Division to provide it with 6,400 special parts each year. The special parts would require $23 per unit in variable production costs. The Machine Division has a bid from an outside supplier for the special parts at $33.90 per unit. In order to have time and space to produce the special part, the Parts Division would have to cut back production of another part-the QR4 that it presently is producing. The QR4 sells for $44 per unit, and requires $22 per unit in variable production costs. Packaging and shipping costs of the QR4 are $2 per unit. Packaging and shipping costs for the new special part would be only $0.50 per unit. The Parts Division is now producing and selling 32,000 units of the QR4 each year. Production and sales of the QR4 would drop by 5% if the new special part is produced for the Machine…arrow_forward
- Cornerstones of Cost Management (Cornerstones Ser...AccountingISBN:9781305970663Author:Don R. Hansen, Maryanne M. MowenPublisher:Cengage LearningPrinciples of Accounting Volume 2AccountingISBN:9781947172609Author:OpenStaxPublisher:OpenStax College