Managerial Accounting: The Cornerstone of Business Decision-Making

7th Edition

ISBN: 9781337115773

Author: Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Publisher: Cengage Learning

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Textbook Question

Chapter 11, Problem 22BEB

Calculating Transfer Price

Teslum Inc. has a number of divisions, including the Machina Division, a producer of high-end espresso makers, and the Java Division, a chain of coffee shops.

Machina Division produces the EXP-100 model espresso maker that can be used by Java Division to create various coffee drinks. The market price of the EXP-100 model is $950, and the full cost of the EXP-100 model is $475.

Required:

1. If Teslum has a transfer pricing policy that requires transfer at full cost, what will the transfer price be? Do you suppose that Machina and Java divisions will choose to transfer at that price?
2. If Teslum has a transfer pricing policy that requires transfer at market price, what would the transfer price be? Do you suppose that Machina and Java divisions would choose to transfer at that price?
3. Now suppose that Teslum allows negotiated transfer pricing and that Machina Division can avoid $135 of selling expense by selling to Java Division. Which division sets the minimum transfer price, and what is it? Which division sets the maximum transfer price, and what is it? Do you suppose that Machina and Java divisions would choose to transfer somewhere in the bargaining range?

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Chapter 11, Problem 21BEB

Chapter 11, Problem 23BEB

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Chapter 11 Solutions

Managerial Accounting: The Cornerstone of Business Decision-Making

Ch. 11 - Discuss the differences between centralized and...Ch. 11 - Prob. 2DQ Ch. 11 - Explain why firms choose to decentralize.Ch. 11 - What are margin and turnover? Explain how these...Ch. 11 - What are the three benefits of ROI? Explain how...Ch. 11 - What is residual income? What is EVA? How does EVA...Ch. 11 - Can residual income or EVA ever be negative? What...Ch. 11 - What is transfer price?Ch. 11 - Prob. 9DQ Ch. 11 - (Appendix 11A) What is the Balanced Scorecard?

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Solution Summary: The author explains the transfer price of EXP-100 model, which is the full cost of the model that is 475, and calculates the minimum and maximum transfer prices.

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Chapter 11 Solutions