Chapter 11, Problem 25P

1.

To determine

Transfer price: Transfer price is the price at which goods and services are transferred between divisions or centres in an organization. The price charged to transfer goods and services is recorded as an expense in the buying division and revenue in the selling division.

1. The lowest transfer price acceptable by A Division.
2. The highest transfer price acceptable by B Division.
3. The range of acceptable transfer prices. Also, determine whether the managers probably agree to a transfer.

2.

To determine

Transfer price: Transfer price is the price at which goods and services are transferred between divisions or centres in an organization. The price charged to transfer goods and services is recorded as an expense in the buying division and revenue in the selling division.

1. The lowest transfer price acceptable by A Division.
2. The highest transfer price acceptable by B Division.
3. The range of acceptable transfer prices. Also, determine whether there is any disagreement between the managers related to the transfer price.
4. The loss in potential profits of the company as a whole.

3.

To determine

Transfer price: Transfer price is the price at which goods and services are transferred between divisions or centres in an organization. The price charged to transfer goods and services is recorded as an expense in the buying division and revenue in the selling division.

Return on Investment or asset: It establishes the relationship between the net income and the assets or capital employed. The ratio is used to measure the overall performance of an organization by looking at how efficiently an organization uses its resources.

1. The lowest transfer price acceptable by A Division.
2. The highest transfer price acceptable by B Division.
3. The range of acceptable transfer prices. Also, determine whether the managers agree to transfer.
4. Whether the return on investment of the A division increases, decreases, or remains unchanged.

4.

To determine

Transfer price: Transfer price is the price at which goods and services are transferred between divisions or centres in an organization. The price charged to transfer goods and services is recorded as an expense in the buying division and revenue in the selling division.

The lowest transfer price acceptable by A Division.