Transfer Price: This is a price which is charged by one sub-unit of an organization to another sub-unit for supplying a product or service in the same organization. To determine: The transfer price for the component be set so that division managers acting in their own division’s best interests take actions that are also in the best interest of the whole company.

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Answer 1

Question

Chapter 22, Problem 22.24E

A.

To determine

Transfer Price:

This is a price which is charged by one sub-unit of an organization to another sub-unit for supplying a product or service in the same organization.

To determine: The transfer price for the component be set so that division managers acting in their own division’s best interests take actions that are also in the best interest of the whole company.

B.

To determine

Whether the division C should purchase from the external suppliers.

C.

To determine

To explain: Whether the division C should purchase from the external suppliers and the transfer price to be set for the component so that the division managers can take actions in the best interest of the company as a whole.

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The following were selected from among the transactions completed by Babcock Company during November of the current year: Nov. 3 Purchased merchandise on account from Moonlight Co., list price $85,000, trade discount 25%, terms FOB destination, 2/10, n/30. 4 Sold merchandise for cash, $37,680. The cost of the goods sold was $22,600. 5 Purchased merchandise on account from Papoose Creek Co., $47,500, terms FOB shipping point, 2/10, n/30, with prepaid freight of $810 added to the invoice. 6 Returned merchandise with an invoice amount of $13,500 ($18,000 list price less trade discount of 25%) purchased on November 3 from Moonlight Co. 8 Sold merchandise on account to Quinn Co., $15,600 with terms n/15. The cost of the goods sold was $9,400. 13 Paid Moonlight Co. on account for purchase of November 3, less return of November 6. 14 Sold merchandise with a list price of $236,000 to customers who used VISA and who redeemed $8,000 of pointof- sale coupons. The cost…

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Answer 2

Question

Chapter 22, Problem 22.24E

A.

To determine

Transfer Price:

This is a price which is charged by one sub-unit of an organization to another sub-unit for supplying a product or service in the same organization.

To determine: The transfer price for the component be set so that division managers acting in their own division’s best interests take actions that are also in the best interest of the whole company.

B.

To determine

Whether the division C should purchase from the external suppliers.

C.

To determine

To explain: Whether the division C should purchase from the external suppliers and the transfer price to be set for the component so that the division managers can take actions in the best interest of the company as a whole.

Expert Solution & Answer

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Answer 3

Question

Chapter 22, Problem 22.24E

A.

To determine

Transfer Price:

This is a price which is charged by one sub-unit of an organization to another sub-unit for supplying a product or service in the same organization.

To determine: The transfer price for the component be set so that division managers acting in their own division’s best interests take actions that are also in the best interest of the whole company.

B.

To determine

Whether the division C should purchase from the external suppliers.

C.

To determine

To explain: Whether the division C should purchase from the external suppliers and the transfer price to be set for the component so that the division managers can take actions in the best interest of the company as a whole.

Expert Solution & Answer

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Answer 4

Question

Chapter 22, Problem 22.24E

A.

To determine

Transfer Price:

This is a price which is charged by one sub-unit of an organization to another sub-unit for supplying a product or service in the same organization.

To determine: The transfer price for the component be set so that division managers acting in their own division’s best interests take actions that are also in the best interest of the whole company.

B.

To determine

Whether the division C should purchase from the external suppliers.

C.

To determine

To explain: Whether the division C should purchase from the external suppliers and the transfer price to be set for the component so that the division managers can take actions in the best interest of the company as a whole.

Expert Solution & Answer

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Answer 5

Chapter 22, Problem 22.24E

A.

To determine

Transfer Price:

This is a price which is charged by one sub-unit of an organization to another sub-unit for supplying a product or service in the same organization.

To determine: The transfer price for the component be set so that division managers acting in their own division’s best interests take actions that are also in the best interest of the whole company.

B.

To determine

Whether the division C should purchase from the external suppliers.

C.

To determine

To explain: Whether the division C should purchase from the external suppliers and the transfer price to be set for the component so that the division managers can take actions in the best interest of the company as a whole.

Answer 6

Chapter 22, Problem 22.24E

A.

To determine

Transfer Price:

This is a price which is charged by one sub-unit of an organization to another sub-unit for supplying a product or service in the same organization.

To determine: The transfer price for the component be set so that division managers acting in their own division’s best interests take actions that are also in the best interest of the whole company.

Answer 7

Chapter 22, Problem 22.24E

A.

To determine

Transfer Price:

This is a price which is charged by one sub-unit of an organization to another sub-unit for supplying a product or service in the same organization.

To determine: The transfer price for the component be set so that division managers acting in their own division’s best interests take actions that are also in the best interest of the whole company.

Answer 8

B.

To determine

Whether the division C should purchase from the external suppliers.

Answer 9

B.

To determine

Whether the division C should purchase from the external suppliers.

Answer 10

C.

To determine

To explain: Whether the division C should purchase from the external suppliers and the transfer price to be set for the component so that the division managers can take actions in the best interest of the company as a whole.

Answer 11

C.

To determine

To explain: Whether the division C should purchase from the external suppliers and the transfer price to be set for the component so that the division managers can take actions in the best interest of the company as a whole.

Answer 12

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Answer 13

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Answer 14

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Answer 15

Ch. 22 - Prob. 22.1Q Ch. 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

Solution Summary: The author recommends setting the transfer price at 125 to avoid the loss to company from the decision of division C.

Whether the division C should purchase from the external suppliers.

To explain: Whether the division C should purchase from the external suppliers and the transfer price to be set for the component so that the division managers can take actions in the best interest of the company as a whole.

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Chapter 22 Solutions