Garcon Inc. manufactures electronic products, with two operating divisions, Consumer and Commercial. Condensed divisional income statements, which involve no intracompany transfers and which include a breakdown of expenses into variable and fixed components, are as follows:(refer to pic)The Consumer Division is presently producing 14,400 units out of a total capacity of 17,280 units. Materials used in producing the Commercial Division’s product are currently purchased from outside suppliers at a price of $150 per unit. The Consumer Division is able to produce the materials used by the Commercial Division. Except for the possible transfer of materials between divisions, no changes are expected in sales and expenses. 5AWhat is the range of possible negotiated transfer prices that would be acceptable for Garcon Inc.?5BAssuming that the managers of the two divisions cannot agree on a transfer price, what price would you suggest as the transfer price?Would the market price of $150 per unit be an appropriate transfer price for Garcon Inc.? Explain. Garcon Inc.Divisional Income StatementsFor the Year Ended December 31, 20Y2ConsumerCommercial1TotalDivisionDivision2 Sales:3 14,400 units x $144 per unit$2,073,600.00$2,073,600.004 21,600 units x $275 per unit$5,940,000.005,940,000.00Total sales$2,073,600.00$5,940,000.00$8,013,600.006 Expenses:7 Variable:14,400 units x $104 per unit$1,497,600.00$1,497,600.008921.600 units x $193° per unit$4,168,800.004,168,800.0010 Fixed200,000.00520.000.00720,000.00Total expenses$1,697,600.00$4.688.800.00$6.386.400.001112 Income from operations$376,000.00$1,251,200.00$1,627,200.00*$150 of the $193 per unit represents materials costs, and the remaining $43 per unit represents other variable conversion expenses incurred within the Commercial Division.The Consumer Division is presently producing 14,400 units out of a total capacity of 17,280 units. Materials used in producing the Commercial Division's product are currently purchased from outside suppliers at a price of $150 per unit. TheConsumer Division is able to produce the materials used by the Commercial Division. Except for the possible transfer of materials between divisions, no changes are expected in sales and expenses.

A negotiated transfer price is a transfer price that is agreed on between the selling and purchasing…

Answered: Garcon Inc. Divisional Income…

Financial & Managerial Accounting

13th Edition

ISBN:9781285866307

Author:Carl Warren, James M. Reeve, Jonathan Duchac

Publisher:Carl Warren, James M. Reeve, Jonathan Duchac

Chapter23: Performance Evaluation For Decentralized Operations

Section: Chapter Questions

Problem 23.3BPE

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Garcon Inc. manufactures electronic products, with two operating divisions, Consumer and Commercial. Condensed divisional income statements, which involve no intracompany transfers and which include a breakdown of expenses into variable and fixed components, are as follows:

(refer to pic)

The Consumer Division is presently producing 14,400 units out of a total capacity of 17,280 units. Materials used in producing the Commercial Division’s product are currently purchased from outside suppliers at a price of $150 per unit. The Consumer Division is able to produce the materials used by the Commercial Division. Except for the possible transfer of materials between divisions, no changes are expected in sales and expenses.

5A	What is the range of possible negotiated transfer prices that would be acceptable for Garcon Inc.?
5B	Assuming that the managers of the two divisions cannot agree on a transfer price, what price would you suggest as the transfer price?

Would the market price of $150 per unit be an appropriate transfer price for Garcon Inc.? Explain.

Garcon Inc.
Divisional Income Statements
For the Year Ended December 31, 20Y2
Consumer
Commercial
1
Total
Division
Division
2 Sales:
3 14,400 units x $144 per unit
$2,073,600.00
$2,073,600.00
4 21,600 units x $275 per unit
$5,940,000.00
5,940,000.00
Total sales
$2,073,600.00
$5,940,000.00
$8,013,600.00
6 Expenses:
7 Variable:
14,400 units x $104 per unit
$1,497,600.00
$1,497,600.00
8
9
21.600 units x $193° per unit
$4,168,800.00
4,168,800.00
10 Fixed
200,000.00
520.000.00
720,000.00
Total expenses
$1,697,600.00
$4.688.800.00
$6.386.400.00
11
12 Income from operations
$376,000.00
$1,251,200.00
$1,627,200.00
*$150 of the $193 per unit represents materials costs, and the remaining $43 per unit represents other variable conversion expenses incurred within the Commercial Division.
The Consumer Division is presently producing 14,400 units out of a total capacity of 17,280 units. Materials used in producing the Commercial Division's product are currently purchased from outside suppliers at a price of $150 per unit. The
Consumer Division is able to produce the materials used by the Commercial Division. Except for the possible transfer of materials between divisions, no changes are expected in sales and expenses.

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