Division A makes a part that it sells to customers outside of the company. Data concerning this part appear below: Selling price to outside customers $ 77 $ 55 Variable cost per unit Total fixed costs Capacity in (units) $ 432,000 27,000 Division B of the same company would like to use the part manufactured by Division A in one of its products. Division B currently purchases a similar part made by an outside company for $74 per unit and would substitute the part made by Division A. Division B requires 5,200 units of the part each period. Division A can already sell all of the units it can produce on the outside market. What should be the lowest acceptable transfer price from the perspective of Division A?

Division A makes a part that it sells to customers outside of the company. Data concerning this part appear below: Selling price to outside customers $ 77 $ 55 Variable cost per unit Total fixed costs Capacity in (units) $ 432,000 27,000 Division B of the same company would like to use the part manufactured by Division A in one of its products. Division B currently purchases a similar part made by an outside company for $74 per unit and would substitute the part made by Division A. Division B requires 5,200 units of the part each period. Division A can already sell all of the units it can produce on the outside market. What should be the lowest acceptable transfer price from the perspective of Division A?

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter10: Short-term Decision Making

Section: Chapter Questions

Problem 5PA: Boston Executive. Inc., produces executive limousines and currently manufactures the mini-bar inset...

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Boston Executive. Inc., produces executive limousines and currently manufactures the mini-bar inset at these costs: The company received an offer from Elite Mini-Bars to produce the insets for $2,100 per Unit and supply 1,000 mini-bars for the coming years estimated production. If the company accepts this offer and shuts down production of this part of the business, production workers and supervisors will be reassigned to other areas. Assume that for the short-term decision-making process demonstrated in this problem, the companys total labor costs (direct labor and supervisor salaries) will remain the same if the bar inserts are purchased. The specialized equipment cannot be used and has no market value. However, the space occupied by the mini bar production can be used by a different production group that will lease it for $55,000 per year. Should the company make or buy the mini-bar insert?
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