Collier Products, Inc. has a Valve Division that manufactures and Sells a standard valve with the following information: Description of Valve Division's Production Amount Capacity in Units 100,000 Selling Price Per Unit 60 Variable Costs Per Unit 26 Variable Selling Expenses Per Unit 6 Fixed Costs Per Unit (Based on Capacity) 18 Collier has a Pump Division that could use the Valve in one of its pumps. Valves (per yr.) the Pump Division is currently purchasing: 10,000 Pump Division cost of each Valve from Overseas Supplier: 58 Refer to the original data about Collier Products, Inc. Assume that the Pump Division needs SPECIAL, (not Standard), High Pressure Valves per year. Quantity = 20,000 The Valve Division's variable cost to Manufacture & Ship the Special Value (per unit). No Variable Selling Costs will be incurred. 40 To Produce the SPEACIAL VALVES, the Valve Division would have to reduce its production and sale of regular valves to outside customers: FROM 100,000 TO 75,000 REQUIRED: As far as the Valve Division is concerned, what is the lowest acceptable transfer price?

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter10: Decentralization: Responsibility Accounting, Performance Evaluation, And Transfer Pricing

Section: Chapter Questions

Problem 4CE

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Collier Products, Inc. has a Valve Division that manufactures and Sells
a standard valve with the following information:

Description of Valve Division's Production		Amount
Capacity in Units		100,000
Selling Price Per Unit		60
Variable Costs Per Unit		26
Variable Selling Expenses Per Unit		6
Fixed Costs Per Unit (Based on Capacity)		18

Collier has a Pump Division that could use the Valve in one of its pumps.

Valves (per yr.) the Pump Division is currently purchasing:		10,000
Pump Division cost of each Valve from Overseas Supplier:		58

Refer to the original data about Collier Products, Inc.

Assume that the Pump Division needs SPECIAL, (not Standard), High Pressure Valves per year. Quantity =		20,000
The Valve Division's variable cost to Manufacture & Ship the Special Value (per unit). No Variable Selling Costs will be incurred.		40

To Produce the SPEACIAL VALVES, the Valve Division would have to reduce its production and sale of regular valves
to outside customers:
FROM		100,000
TO		75,000

REQUIRED: As far as the Valve Division is concerned, what is the lowest acceptable transfer price?

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