MANAGERIAL ACCT W/CONNECT >IC<
15th Edition
ISBN: 9781259405303
Author: Garrison
Publisher: MCG
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Chapter 11.A, Problem 4P
PROBLEM 11A-4 Transfer Price with an Outside Market LO11-5
Hrubec Products, Inc., operates a Pulp Division that manufactures wood pulp for use in the production of various paper goods. Revenue and costs associated with a ton of pulp follow:
Hrubec Products has just acquired a small company that manufactures paper cartons. This company will be treated as a division of Hrubec with full profit responsibility. The newly formed Carton Division is currently purchasing 5:000 tons of pulp per year from a supplier at a cost of $70 per ton, less a 10% purchase discount. Hrubec7s president is anxious for the Carton Division to begin purchasing its pulp from the Pulp Division if an acceptable transfer price can be worked out.
Required:
For (1) and (2) below, assume the Pulp Division can sell all of its pulp to outside customers for $70 per ton.
- What is the lowest acceptable transfer price from the perspective of the Pulp Division? What is the highest acceptable transfer price from the perspective of the Carton Division? What is the range of acceptable transfer prices (if any) between the two divisions? Are the managers of the Carton and Pulp Divisions likely to voluntarily agree to a transfer price for 5,000 tons of pulp next year? Why or why not?
- If the Pulp Division meets the price that the Carton Division is currently paying to its supplier and sells 5,000 tons of pulp to the Carton Division each year, what will be the effect on the profits of the Pulp Division, the Carton Division, and the company as a whole? For (3)-(6) below, assume that the Pulp Division is currently selling only 30,000 tons of pulp each year to outside customers at the stated $70 price.
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Transfer Price with an Outside Market
Hrubec Products. Inc., operates a Pulp Division that manufactures wood pulp for use in the production of various paper goods. Revenue and costs associated with a ton of pulp follow:
Hrubec Products has just acquired a small company that manufactures paper cartons. This company will be treated as a division of Hrubec with full profit responsibility. The newly formed Carton Division is currently purchasing 5,000 tons of pulp per year from a supplier at a cost of $70 per ton, less a 10% purchase discount. Hrubec’s president is anxious for the Carton Division to begin purchasing its pulp from the Pulp Division if an acceptable transfer price can be worked out.
Required:
For (1) and (2) below, assume the Pulp Division can sell all of its pulp to outside customers for $70 per ton.
1. What is the lowest acceptable transfer price from the perspective of the Pulp Division? What is the highest acceptable transfer price from the perspective of the Carton…
Exercise 11-7 (Algo) Transfer Pricing from the Viewpoint of the Entire Company (LO11-3]
Division A manufactures electronic circuit boards that can be sold to Division B of the same company or to outside customers. Last
year, the following activity occurred in Division A:
Selling price per circuit board
Variable cost per circuit board
Number of circuit boards:
Produced during the year
Sold to outside customers
Sold to Division B
$ 189
$ 120
20,300
14,500
5,800
Sales to Division B were at the same price as sales to outside customers. The circuit boards purchased by Division B were used in an
electronic instrument manufactured by that division (one board per instrument). Division B incurred $300 in additional variable cost per
instrument and then sold the instruments for $690 each.
Required:
1. Calculate the net operating incomes earned by Division A, Division B, and the company as a whole.
2. Assume Division A's manufacturing capacity is 20,300 circuit boards. Next year, Division B wants…
Question 10.4
Big Machines Corp. has two divisions. Division Y manufactures components that can be sold in the external market place or transferred to Division Z for further processing. The following data relate to Division Y's component product.
Variable manufacturing costs/unit
$925
Fixed costs/unit at capacity
$275
Selling price/unit
$1,800
The capacity of the plant is 2,500 units per year.
Division Z has offered to purchase 350 units from Division Y at a price of $1,600/unit, which is the market price of the component. The manager of Division Y has refused this offer stating that it would only return a rate of 25.00%, when the divisional target return on sales is 28.00%. The Division Y manager also states that additional fixed costs of $195,000 would be required to produce the 350 units.
The corporate required rate of return is 18% of assets and the existing asset base in Division Y is $2,500,000.
Required:
How many units must Division Y sell in order…
Chapter 11 Solutions
MANAGERIAL ACCT W/CONNECT >IC<
Ch. 11.A - Prob. 1ECh. 11.A - EXERCISE 11A-2 Transfer Pricing from the Viewpoint...Ch. 11.A - EXERCISE 11A-3 Transfer Pricing Situations LO11-5...Ch. 11.A - PROBLEM 11A-4 Transfer Price with an Outside...Ch. 11.A - Prob. 5PCh. 11.A - Prob. 6PCh. 11.A - Prob. 7CCh. 11.B - EXERCISE 11B-1 Service Department Charges L011-6...Ch. 11.B - Prob. 2ECh. 11.B - Prob. 3E
Ch. 11.B - Prob. 4PCh. 11.B - Prob. 5PCh. 11 - Prob. 1QCh. 11 - Prob. 2QCh. 11 - Prob. 3QCh. 11 - Prob. 4QCh. 11 - Prob. 5QCh. 11 - Prob. 6QCh. 11 - What is the difference between delivery cycle time...Ch. 11 - Prob. 8QCh. 11 - Prob. 9QCh. 11 - Prob. 10QCh. 11 - Prob. 1AECh. 11 - Prob. 2AECh. 11 - Prob. 1F15Ch. 11 - Prob. 2F15Ch. 11 - Prob. 3F15Ch. 11 - Prob. 4F15Ch. 11 - Prob. 5F15Ch. 11 - Prob. 6F15Ch. 11 - Prob. 7F15Ch. 11 - Prob. 8F15Ch. 11 - Prob. 9F15Ch. 11 - Prob. 10F15Ch. 11 - Prob. 11F15Ch. 11 - (
$1,000,000
300,000
700,000
500.000
$
200,000
...Ch. 11 - Prob. 13F15Ch. 11 - Prob. 14F15Ch. 11 - Prob. 15F15Ch. 11 - Prob. 1ECh. 11 - Prob. 2ECh. 11 - EXERCISE 11-3 Measures of Internal Business...Ch. 11 -
EXERCISE 11-4 Building a Balanced Scorecard...Ch. 11 - Prob. 5ECh. 11 - Prob. 6ECh. 11 - Prob. 7ECh. 11 - Prob. 8ECh. 11 -
EXERCISE 11-9 Return on Investment (ROI) and...Ch. 11 - Prob. 10ECh. 11 - Prob. 11ECh. 11 - Prob. 12ECh. 11 - Prob. 13ECh. 11 - Prob. 14PCh. 11 - Prob. 15PCh. 11 - Prob. 16PCh. 11 - Prob. 17PCh. 11 - Prob. 18PCh. 11 - Prob. 19PCh. 11 - Prob. 20PCh. 11 - PROBLEM 11-21 Creating Balanced Scorecards that...Ch. 11 - Prob. 22PCh. 11 - CASE 11-23 Balanced Scorecard L011-4
Haglund...
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