1a.
Introduction: The transfer price refers to the price at which the goods and services are exchanged between companies under common control or between divisions of the same company.
The value of the lowest transfer price acceptable by the selling division.
1b.
Introduction: The transfer price refers to the price at which the goods and services are exchanged between companies under common control or between divisions of the same company.
The value of the highest transfer price acceptable by the buying division.
1c.
Introduction: The transfer price refers to the price at which the goods and services are exchanged between companies under common control or between divisions of the same company.
The range of acceptable transfer prices between two divisions and will the transfer take place or not.
2a.
Introduction: The transfer price refers to the price at which the goods and services are exchanged between companies under common control or between divisions of the same company.
The value of the lowest transfer price acceptable by the selling division.
2b.
Introduction: The transfer price refers to the price at which the goods and services are exchanged between companies under common control or between divisions of the same company.
The value of the highest transfer price acceptable by the buying division.
2c.
Introduction: The transfer price refers to the price at which the goods and services are exchanged between companies under common control or between divisions of the same company.
The range of acceptable transfer prices and will the transfer take place or not.
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MANAGERIAL ACCOUNTING F/MGRS.
- Hi, I also need help finding the highest acceptable transfer price and the lowest acceptable transfer price. Thanksarrow_forwardBasic Transfer Pricing Alpha and Beta are divisions within the same company. The managers of both divisions are evaluated based on their own division’s return on investment (ROI). Assume the following information relative to the two divisions: Managers are free to decide if they will participate in any internal transfers. All transfer prices are negotiated. Required: 1. Refer to case 1 shown above. Alpha Division can avoid $2 per unit in commissions on any sales to Beta Division. a. What is the lowest acceptable transfer price from the perspective of the Alpha Division? b. What is the highest acceptable transfer price from the perspective of the Beta Division? c. What is the range of acceptable transfer prices (if any) between the two divisions? Will the managers probably agree to a transfer? Explain. 2. Refer to case 2 shown above. A study indicates that Alpha Division can avoid $5 per unit in shipping costs on any sales to Beta Division. a. What is the lowest acceptable transfer…arrow_forwardVishnuarrow_forward
- Exercise 11-13 (Algo) Transfer Pricing Situations [LO11-3] [The following information applies to the questions displayed below.] In each of the cases below, assume Division X has a product that can be sold either to outside customers or to Division Y of the same company for use in its production process. The managers of the divisions are evaluated based on their divisional profits. Case A B Division X: Capacity in units Number of units being sold to outside customers Selling price per unit to outside customers 95,000 95,000 96,000 79,000 $ 50 $ 30 Variable costs per unit Fixed costs per unit (based on capacity) Division Y: $ 28 $ 12 $ 6 $ 4 Number of units needed for production 17,000 17,000 Purchase price per unit now being paid to an outside supplier $ 43 $ 24 Exercise 11-13 (Algo) Part 2 Required: 2. Refer to the data in case B above. In this case, there will be no savings in variable selling costs on intracompany sales. a. What is the lowest acceptable transfer price from the…arrow_forwardExercise 8 (Transfer Pricing Situations) In each of the cases below, assume that Division A has 'a product that can be sold either to outside customers or to Division B of the same company for use in its production process. The managers of the divisions are evaluated based on their divisional profits. Case 1 2 Division X: Capacity in units. Number of units being sold to outside customers.. Selling price per unit to outside customers Variable costs per unit... Fixed costs per unit (based on capacity). 100,000 100,000 P50 P30 100,000 80,000 P35 P20 P 8 Division Y: Number of units needed for production... Purchase price per unit now being paid to an outside supplier.. 20,000 20,000 P47 Р34 Required: 1. Refer to the data in case A above. Assume that P2 per unit in variable selling costs can be avoided on intracompany sales. If the managers are free to negotiate and make decisions on their own, will a transfer take place? If so, within what range will the transfer price fall? Explain. 2.…arrow_forwardWhen the selling division in an Internal transfer can sell every product at Its market price, then the lowest acceptable transter price as far as the seling diion is concened is Multiple Cholce The amount that the purchasing division would have to pay an outslde seller to acquire a similar product for Its use. The fixed cost of producing a unit of product. The market price charged to outside customers. The variable cost of producing a unit of product. Total cost of producing a unit of product.arrow_forward
- 3. Match the following terms with the correct definition in the table below. List of possible terms: • Transfer price • Negotiated transfer price • Transfer pricing Market price • Intermediate market Term (fill in) Definition The price normally charged for a similar product to an external con- sumer The practice that focuses on how companies price goods or services transferred between a company's segments A competitive outside market for a similar product The price one division charges for a good or service sold to another division within the company A transfer price mutually agreed upon between the buying and selling divisionsarrow_forwardThe company uses the opportunity cost approach to transfer pricing. What is the minimum transfer price in Case 1?arrow_forwardCalculating Transfer Price Burt Inc. has a number of divisions, including the Indian Division, a producer of liquid pumps, and Maple Division, a manufacturer of boat engines. Indian Division produces the h20-model pump that can be used by Maple Division in the production of motors that regulate the raising and lowering of the boat engir stern drive unit. The market price of the h20-model is $724, and the full cost of the h20-model is $540. Required: 1. If Burt has a transfer pricing policy that requires transfer at full cost: What will the transfer price be? $ Do you suppose that Indian and Maple divisions will choose to transfer at that price? Maple Division Indian Division 2. If Burt has a transfer pricing policy that requires transfer at market price: What would the transfer price be? $ Do you suppose that Indian and Maple divisions would choose to transfer at that price? Maple Division Indian Division 3. Now suppose that Burt allows negotiated transfer pricing and that Indian…arrow_forward
- APPLY THE CONCEPTS: Determining benefits of negotiated transfer price Assume that Selling Division and Buying Division are both owned by Overall Corporation. Selling Division sells a product that is used by Buying Division and outside customers. Selling Division has 18,000 units of excess capacity. Selling Division currently sells the product for $60 per unit and Buying Division currently buys 18,000 units of the product from an outside source for $60 per unit. Variable costs of the product are $12, of which $3 is the cost of selling the product to an outside customer. Using Selling price less avoidable costs as the minimum price, fill in the following formula for the desired transfer price: $fill in the blank 51adeff30f88fa7_1 < transfer price < $fill in the blank 51adeff30f88fa7_2. Using Variable costs as the minimum price, fill in the following formula for the desired transfer price: $fill in the blank 51adeff30f88fa7_3 < transfer price < $fill in the blank…arrow_forwardThe Fruity Bakers specialize in making delicious cakes. Their trademark fruit cake is made in Division X (the supplying division) and sold to external customers for them to decorate, or it can be enjoyed plain. It is also transferred to Division Y (the receiving division) where it is iced and decorated to be sold as a luxury wedding cake. Fruity Bakers are currently trying to decide what the optimum price to sell the cakes from Division X to Y should be in order to motivate the managers of both divisions. The following data shows the costs incurred by Division X to make a fruit cake and by Division Y to ice and decorate the wedding cake: $/unit Division X Variable costs 22 Fixed overhead 9 31 Division Y Variable costs 33 Fixed overhead 8. 41 Plain fruit cakes can be sold and purchased externally for $35. Wedding cakes can be sold for $80. Instructions: 1. Should the company make the fruit cakes internally or buy them in? 2. What non-financial factors should also be taken into…arrow_forward1. “Transfer pricing is confined to profit centres”. Do you agree? Why? 2. Give three general methods for determining transfer prices. 3. What properties should transfer-pricing systems have? 4. “All transfer-pricing methods give the same division operating income.” Do you agree? Explain. 5. Under what conditions is a market-based transfer price optimal? 6. What is one potential limitation of full cost-based transfer pricing?arrow_forward
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