HORNGRENS COST ACCOUNTING W/ACCESS
16th Edition
ISBN: 9781323687604
Author: Datar
Publisher: PEARSON
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Question
Chapter 22, Problem 22.19E
A.
To determine
Transfer Pricing:
This refers to a process of pricing in which one sub-unit of an organization charges a price to another sub-unit for supplying a product or service to the sub-unit of the same organization.
To determine: Whether CL will process the raw lumber into its finished form.
B.
To determine
Whether each division should maximize its operating income contribution by adopting the action that is in the best interest of the whole.
C.
To determine
Whether each division should maximize its operating income contribution by adopting the action that is in the best interest of the whole.
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Students have asked these similar questions
Calgary Lumber has a raw lumber division and a finished lumber division. The variable costs are as follows:
■ Raw lumber division: $125 per 100 board-feet of raw lumber
■ Finished lumber division: $145 per 100 board-feet of finished lumber
Assume that there is no board-feet loss in processing raw lumber into finished lumber.
Raw lumber can be sold at $175 per 100 board-feet.
Finished lumber can be sold at $345 per 100 board-feet.
Q. Assume that internal transfers are made at market prices. Will each division maximize its division operating-income contribution by adopting the action that is in the best interest of Calgary Lumber as a whole? Explain.
Calgary Lumber has a raw lumber division and a finished lumber division. The variable costs are as follows:
■ Raw lumber division: $125 per 100 board-feet of raw lumber
■ Finished lumber division: $145 per 100 board-feet of finished lumber
Assume that there is no board-feet loss in processing raw lumber into finished lumber.
Raw lumber can be sold at $175 per 100 board-feet.
Finished lumber can be sold at $345 per 100 board-feet.
Q. Assume that internal transfers are made at 130% of variable cost. Will each division maximize its division operating-income contribution by adopting the action that is in the best interest of Calgary Lumber as a whole? Explain.
Calgary Lumber has a raw lumber division and a finished lumber division. The variable costs are as follows:
■ Raw lumber division: $125 per 100 board-feet of raw lumber
■ Finished lumber division: $145 per 100 board-feet of finished lumber
Assume that there is no board-feet loss in processing raw lumber into finished lumber.
Raw lumber can be sold at $175 per 100 board-feet.
Finished lumber can be sold at $345 per 100 board-feet.
Q. Should Calgary Lumber process raw lumber into its finished form? Show your calculations.
Chapter 22 Solutions
HORNGRENS COST ACCOUNTING W/ACCESS
Ch. 22 - Prob. 22.1QCh. 22 - Describe three criteria you would use to evaluate...Ch. 22 - What is the relationship among motivation, goal...Ch. 22 - Name three benefits and two costs of...Ch. 22 - Organizations typically adopt a consistent...Ch. 22 - Transfer pricing is confined to profit centers. Do...Ch. 22 - What are the three methods for determining...Ch. 22 - What properties should transfer-pricing systems...Ch. 22 - All transfer-pricing methods give the same...Ch. 22 - Prob. 22.10Q
Ch. 22 - Prob. 22.11QCh. 22 - Prob. 22.12QCh. 22 - Prob. 22.13QCh. 22 - Under the general guideline for transfer pricing,...Ch. 22 - How should managers consider income tax issues...Ch. 22 - Evaluating management control systems, balanced...Ch. 22 - Cost centers, profit centers, decentralization,...Ch. 22 - Prob. 22.18ECh. 22 - Prob. 22.19ECh. 22 - Multinational transfer pricing, effect of...Ch. 22 - Prob. 22.21ECh. 22 - Multinational transfer pricing, global tax...Ch. 22 - Prob. 22.23ECh. 22 - Prob. 22.24ECh. 22 - Transfer-pricing problem (continuation of 22-24)....Ch. 22 - Prob. 22.26PCh. 22 - Prob. 22.27PCh. 22 - Effect of alternative transfer-pricing methods on...Ch. 22 - Goal-congruence problems with cost-plus...Ch. 22 - Multinational transfer pricing, global tax...Ch. 22 - Transfer pricing, external market, goal...Ch. 22 - Prob. 22.32PCh. 22 - Transfer pricing, goal congruence, ethics. Cocoa...Ch. 22 - Prob. 22.34PCh. 22 - Transfer pricing, perfect and imperfect markets....Ch. 22 - Prob. 22.36PCh. 22 - Prob. 22.37P
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Similar questions
- Company 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 full-cost-based transfer price? • Variable cost per unit $6.69 Fixed cost per unit 1.47 . Division B sales price of Component X 14,50arrow_forwardKojo Company uses cost-based transfer pricing. Its Food Processing Division has a standard variable cost of $10.10 per case and allocated fixed overhead of $3.05. The Processing Division, which has excess capacity, sells its output to external customers for $13.60 per case. If Kojo uses full (or absorption) cost as its base, what would be the transfer price charged to its Retail Division?arrow_forwardCompany E has two divisions, Division A and Division B. Division A is currently buying Component X from an external seller for $13. 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 cost-based transfer price? Variable cost per unit $6.31 Fixed cost per unit 1.36 Division B sales price of Component X 14.5arrow_forward
- What should the transfer price be and why?arrow_forwardFind minimum, maximum and appropriate transfer pricearrow_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
- The company uses the opportunity cost approach to transfer pricing. What is the minimum transfer price in Case 1?arrow_forwardSandpiper Inc. has a division that manufactures a component that sells for $165 and has a variable cost of $45. Another division of the company wants to purchase the component Fixed cost per unit of the component is $20. What is the minimum transfer price if the division is operating at capacity? OA. $165 OB. $45 OC. $20 OD. $65arrow_forwardCompany E has two divisions, Division A and Division B. Division A is currently buying Component X from an external seller for $14. 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 cost plus assuming 22% transfer price? • Variable cost per unit $7.27 Fixed cost per unit 1.93 • Division B sales price of Component X 14.50arrow_forward
- Company E has two divisions, Division A and Division B. Division A is currently buying Component X from an external seller for $14. 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 cost plus assuming 22% transfer price? • Variable cost per unit $6.71 • Fixed cost per unit 1.03 • Division B sales price of Component X 14.50arrow_forwardHu Corporation has two operating divisions, A and B. The following information is provided for Division A: Unit selling price $200 Unit variable $120 costs Unit fixed costs $ 40 Division B uses the type of product produced by Division A and has approached Division A about buying the product internally. Division B is currently paying $180 to purchase the product from an outside source. If Division A sells internally, it can save $5 per unit in variable costs. Assuming Division A is operating at capacity, what price should it charge Division B if the transfer is to be made? Multiple Choice $115 $195 $125 $200arrow_forwardHu Corporation has two operating divisions, A and B. The following information is provided for Division A: Unit selling price $200 Unit variable $120 costs Unit fixed costs $ 40 Division B uses the type of product produced by Division A and has approached Division A about buying the product internally. Division B is currently paying $180 to purchase the product from an outside source. If Division A sells internally, it can save $5 per unit in variable costs. Assuming Division A is operating at capacity, what price should it charge Division B if the transfer is to be made? Multiple Choice $115 $195 X $125 $200arrow_forward
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