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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Calculating Transfer PriceBurt 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 theproduction of motors that regulate the raising and lowering of the boat engine’s stern drive unit.The market price of the h20-model is $720, 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 transferprice be? Do you suppose that Indian and Maple divisions will choose to transfer at thatprice?
2. If Burt has a transfer pricing policy that requires transfer at market price, what wouldthe transfer price be? Do you suppose that Indian and Maple divisions would choose totransfer at that price?3. Now suppose that Burt allows negotiated transfer pricing and that Indian Divisioncan avoid $120 of selling expense by selling to Maple Division. Which…
Teslum Inc. has a number of divisions, including the Machina Division, a producer of high-endespresso makers, and the Java Division, a chain of coffee shops.Machina Division produces the EXP-100 model espresso maker that can be used by JavaDivision to create various coffee drinks. The market price of the EXP-100 model is $950, andthe 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 thetransfer price be? Do you suppose that Machina and Java divisions will choose to transferat that price?2. If Teslum has a transfer pricing policy that requires transfer at market price, what wouldthe transfer price be? Do you suppose that Machina and Java divisions would choose totransfer at that price?3. Now suppose that Teslum allows negotiated transfer pricing and that Machina Divisioncan avoid $135 of selling expense by selling to Java Division. Which division sets theminimum transfer price, and what is it? Which…
Transfer pricing
Henderson Company manufactures electronics. The Calculator Division (an investment center) manufactures handheld calculators. The division can purchase the batteries used in the calculators from the Battery Division (another investment center) or from an outside vendor. The cost to purchase batteries from the outside vendor is $5. The transfer price to purchase from the Battery Division is $6. The Battery Division also sells to outside customers. The sales price is $6, and the variable cost is $3. The Battery Division has excess capacity.
Requirements
Should the Calculator Division purchase from the Battery Division or the outside vendor?
If Henderson Company allows division managers to negotiate transfer prices what is the maximum transfer price the manager of the Calculator Division should consider?
What is the minimum transfer price the manager of the Battery Division should-consider?
Does your answer to Requirement 3 change if the Battery Division is operating at…
Chapter 11 Solutions
Managerial Accounting: The Cornerstone of Business Decision-Making
Ch. 11 - Discuss the differences between centralized and...Ch. 11 - Prob. 2DQCh. 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. 9DQCh. 11 - (Appendix 11A) What is the Balanced Scorecard?
Ch. 11 - (Appendix 11A) Describe the four perspectives of...Ch. 11 - The practice of delegating authority to...Ch. 11 - Which of the following is not a reason for...Ch. 11 - A responsibility center in which a manager is...Ch. 11 - A responsibility center in which a manager is...Ch. 11 - If sales and average operating assets for Year 2...Ch. 11 - If sales and average operating assets for Year 2...Ch. 11 - The key difference between residual income and EVA...Ch. 11 - It ROI for a division is 15% and the company's...Ch. 11 - Prob. 9MCQCh. 11 - Prob. 10MCQCh. 11 - (Appendix 11A) Which of the following is a...Ch. 11 - (Appendix 11A) The length of time it takes to...Ch. 11 - Use the following information for Brief Exercises...Ch. 11 - Use the following information for Brief Exercises...Ch. 11 - Use the following information for Brief Exercises...Ch. 11 - Prob. 16BEACh. 11 - Use the following information for Brief Exercises...Ch. 11 - Use the following information for Brief Exercises...Ch. 11 - Use the following information for Brief Exercises...Ch. 11 - Use the following information for Brief Exercises...Ch. 11 - Prob. 21BEBCh. 11 - Calculating Transfer Price Teslum Inc. has a...Ch. 11 - Use the following information for Brief Exercises...Ch. 11 - Use the following information for Brief Exercises...Ch. 11 - Types of Responsibility Centers Consider each of...Ch. 11 - Margin, Turnover, Return on Investment Pelak...Ch. 11 - Margin, Turnover, Return on Investment, Average...Ch. 11 - Return on Investment, Margin, Turnover Data follow...Ch. 11 - Residual Income The Avila Division of Maldonado...Ch. 11 - Economic Value Added Falconer Company had net...Ch. 11 - Use the following information for Exercises 11-31...Ch. 11 - Use the following information for Exercises 11-31...Ch. 11 - Prob. 33ECh. 11 - Use the following information for Exercises 11-33...Ch. 11 - Prob. 35ECh. 11 - (Appendix 11A) Cycle Time and Velocity Prakesh...Ch. 11 - (Appendix 11A) Cycle Time and Velocity Lasker...Ch. 11 - (Appendix 11A) Manufacturing Cycle Efficiency...Ch. 11 - (Appendix 11A) Manufacturing Cycle Efficiency...Ch. 11 - Return on Investment and Investment Decisions...Ch. 11 - Return on Investment, Margin, Turnover Ready...Ch. 11 - Return on Investment for Multiple Investments,...Ch. 11 - Return on Investment and Economic Value Added...Ch. 11 - Transfer Pricing GreenWorld Inc. is a nursery...Ch. 11 - Prob. 45PCh. 11 - Prob. 46PCh. 11 - (Appendix 11A) Cycle Time, Velocity, Conversion...Ch. 11 - (Appendix 11A) Balanced Scorecard The following...Ch. 11 - (Appendix 11A) Cycle Time and Velocity,...Ch. 11 - Prob. 50C
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