COST ACCOUNTING W/CONNECT
6th Edition
ISBN: 9781264022021
Author: LANEN
Publisher: MCG
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Chapter 15, Problem 25E
Evaluate Transfer Pricing System
Southwest Division offers its product to outside markets for $30. It incurs variable costs of $11 per unit and fixed costs of $37,500 per month based on monthly production of 4,000 units. Northeast Division can acquire the product from an alternate supplier for $31 per unit or from Southwest Division for a transfer price of $30 plus $2 per unit in transportation costs.
Required
- a. What are the costs and benefits of the alternatives available to Southwest Division and Northeast Division with respect to the transfer of Southwest Division’s product? Assume that Southwest Division can market all that it can produce.
- b. How would your answer change if Southwest Division had idle capacity sufficient to cover all of Northeast Division’s needs?
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General Transfer Pricing Rule Scottsdale Manufacturing is organized into two divisions:Fabrication and Assembly. Components transferred between the two divisions are recorded at a predetermined transfer price. Standard variable manufacturing cost per unit in the Fabrication Divisionis $500. At the present time, this division is working to capacity. Fabrication estimates that the unitsit produces could be sold on the external market for $650. The product under consideration is viewedas a commodity-type product, with no differentiating features or characteristics.Required1. What roles are played by transfer prices? That is, why are transfer prices needed?2. Use the general transfer pricing rule presented in the chapter to determine an appropriate transfer price.Why is the amount you calculated considered an appropriate transfer price?3. What if the Fabrication Division had excess capacity? How would this change the indicated transferprice? Why is the amount you determined considered an…
Both parts please!
Determining Market-Based and Negotiated Transfer Prices
Carreker, Inc., has a number of divisions, including the Alamosa Division, producer of surgical blades, and the Tavaris Division, a manufacturer of medical instruments.
Alamosa Division produces a 2.5 cm steel blade that can be used by Tavaris Division in the production of scalpels. The market price of the blade is $25. Cost information for the blade is:
Variable product cost
$ 9.40
Fixed cost
5.00
Total product cost
$14.40
Tavaris needs 18,000 units of the 2.5 cm blade per year. Alamosa Division is at full capacity (84,000 units of the blade).
Required:
1. If Carreker, Inc., has a transfer pricing policy that requires transfer at market price, what would the transfer price be?$ fill in the blank 1per unit
Do you suppose that Alamosa and Tavaris divisions would choose to transfer at that price?
2. Now suppose that Carreker, Inc., allows negotiated transfer pricing and that Alamosa Division can avoid $1.50 of selling…
Chapter 15 Solutions
COST ACCOUNTING W/CONNECT
Ch. 15 - What is the purpose of a transfer price?Ch. 15 - Prob. 2RQCh. 15 - Prob. 3RQCh. 15 - What are the limitations of market-based transfer...Ch. 15 - Prob. 5RQCh. 15 - When would you advise a firm to use prices other...Ch. 15 - What is the basis for choosing between actual and...Ch. 15 - What are the advantages and disadvantages of a...Ch. 15 - Prob. 9RQCh. 15 - Why is transfer pricing important in tax...
Ch. 15 - Prob. 11RQCh. 15 - What should an effective transfer pricing system...Ch. 15 - Prob. 13CADQCh. 15 - Prob. 14CADQCh. 15 - Refer to the Business Application item, Transfer...Ch. 15 - Prob. 16CADQCh. 15 - Prob. 17CADQCh. 15 - In what ways is transfer pricing like cost...Ch. 15 - In Chapter 12, we discussed corporate cost...Ch. 15 - Prob. 20ECh. 15 - Prob. 21ECh. 15 - Apply Transfer Pricing Rules Best Practices, Inc.,...Ch. 15 - Prob. 23ECh. 15 - Prob. 24ECh. 15 - Evaluate Transfer Pricing System Southwest...Ch. 15 - Prob. 26ECh. 15 - Evaluate Transfer Pricing System Carmen Seville...Ch. 15 - Prob. 28ECh. 15 - Prob. 29ECh. 15 - Prob. 30ECh. 15 - Prob. 31ECh. 15 - Prob. 32ECh. 15 - Prob. 33ECh. 15 - Prob. 34ECh. 15 - Prob. 35ECh. 15 - Segment Reporting Leapin Larrys Pre-Owned Cars has...Ch. 15 - Segment Reporting Perth Corporation has two...Ch. 15 - Prob. 38PCh. 15 - Prob. 39PCh. 15 - Prob. 40PCh. 15 - International Transfer Prices Skane Shipping Ltd....Ch. 15 - International Transfer Prices Badger Air is an...Ch. 15 - Prob. 43PCh. 15 - Prob. 44PCh. 15 - Prob. 45PCh. 15 - Weaver, Inc., is a large consumer products...Ch. 15 - Western States Supply, Inc. (WSS), consists of...Ch. 15 - Prob. 48PCh. 15 - Midwest Entertainment has four operating...Ch. 15 - Prob. 50PCh. 15 - Mathes Corporation manufactures paper products....Ch. 15 - Refer to the data in Problem 15-51. At the end of...Ch. 15 - CHS is a large multidivision firm. One division,...Ch. 15 - Prob. 54PCh. 15 - Prob. 56IC
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- Determining Market-Based and Negotiated Transfer Prices Carreker, Inc., has number of divisions, including the Alamosa Division, producer of surgical blades, and the Tavaris Division, a manufacturer of medical instruments. Alamosa Division produces a 2.7 cm steel blade that can be used by Tavaris Division in the production of scalpels. The market price of the blade is $20. Cost information for the blade is: Variable product cost $ 9.70 Fixed cost 5.20 Total product cost $14.90 Tavaris needs 17,000 units of the 2.7 cm blade per year. Alamosa Division is at full capacity (87,000 units of the blade). Required: 1. If Carreker, Inc., has a transfer pricing policy that requires transfer at market price, what would the transfer price be? 24 per unit Do you suppose that Alamosa and Tavaris divisions would choose to transfer at that price? Yes v 2. Now suppose that Carreker, Inc., allows negotiated transfer pricing and that Alamosa Division can avoid $1.55 of selling and distribution expense by…arrow_forwardDecision on transfer pricingarrow_forwardCompany E has two divisions, Division A and Division B. Division A is currently buying Component X from an external seller for $12. Division B produces Component X and has excess capacity. Using the following data, what would the transfer price per unit if Division A purchased Component X from Division B at the market-based transfer price? • Variable cost per unit $10 • Fixed cost per unit 1.16 • Division B sales price of Component X 14.50arrow_forward
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- The company uses the opportunity cost approach to transfer pricing. What is the minimum transfer price in Case 1?arrow_forwardPlease provide the Transfer Pricing Schedule/Policy under the Optimum Transfer Pricing Method for the attached problem.arrow_forwardWhat should the transfer price be and why?arrow_forward
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