Exercise 11-13 (Algo) Transfer Pricing Situations [LO11-3]Skip to question [The following information applies to the questions displayed below.] In each of the cases below, assume Division X has a product that can be sold either to outside customers or to Division Y of the same company for use in its production process. The managers of the divisions are evaluated based on their divisional profits. CaseABDivision X: Capacity in units100,00095,000Number of units being sold to outside customers100,00074,000Selling price per unit to outside customers$ 55$ 30Variable costs per unit$ 26$ 14Fixed costs per unit (based on capacity)$ 7$ 5Division Y: Number of units needed for production21,00021,000Purchase price per unit now being paid to an outside supplier$ 50$ 28 Exercise 11-13 (Algo) Part 1Required:1. Refer to the data in case A above. Assume in this case that $3 per unit in variable selling costs can be avoided on intracompany sales.a. What is the lowest acceptable transfer price from the perspective of the selling division?b. What is the highest acceptable transfer price from the perspective of the buying division?c. What is the range of acceptable transfer prices (if any) between the two divisions? If the managers are free to negotiate and make decisions on their own, will a transfer probably take place?

The total cost of production of a good comprises the total fixed cost of production and the total…

Answered: ach of the cases below, assume Division…

Survey of Accounting (Accounting I)

8th Edition

ISBN:9781305961883

Author:Carl Warren

Publisher:Carl Warren

Chapter14: Decentralized Operations

Section: Chapter Questions

Problem 14.18E

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Exercise 11-13 (Algo) Transfer Pricing Situations [LO11-3]

Skip to question

[The following information applies to the questions displayed below.]

In each of the cases below, assume Division X has a product that can be sold either to outside customers or to Division Y of the same company for use in its production process. The managers of the divisions are evaluated based on their divisional profits.

	Case
A	B
Division X:
Capacity in units	100,000	95,000
Number of units being sold to outside customers	100,000	74,000
Selling price per unit to outside customers	$ 55	$ 30
Variable costs per unit	$ 26	$ 14
Fixed costs per unit (based on capacity)	$ 7	$ 5
Division Y:
Number of units needed for production	21,000	21,000
Purchase price per unit now being paid to an outside supplier	$ 50	$ 28

Exercise 11-13 (Algo) Part 1

Required:

1. Refer to the data in case A above. Assume in this case that $3 per unit in variable selling costs can be avoided on intracompany sales.

a. What is the lowest acceptable transfer price from the perspective of the selling division?

b. What is the highest acceptable transfer price from the perspective of the buying division?

c. What is the range of acceptable transfer prices (if any) between the two divisions? If the managers are free to negotiate and make decisions on their own, will a transfer probably take place?

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