Garcon Inc. manufactures electronic products, with two operating divisions, the Consumer and Commercial divisions. Condensed divisional income statements, which involve no intracompany transfers and include a breakdown of expenses into variable and fixed components, are as follows: Garcon Inc. Divisional Income Statements For the Year Ended December 31, 20Y8 1 Consumer Division Commercial Division Total 2 Sales: 3 14,400 units @ $144 per unit $2,073,600.00 $2,073,600.00 4 21,600 units @ $275 per unit $5,940,000.00 5,940,000.00 5 $2,073,600.00 $5,940,000.00 $8,013,600.00 6 Expenses: 7 Variable: 8 14,400 units @ $104 per unit $1,497,600.00 $1,497,600.00 9 21,600 units @ $193* per unit $4,168,800.00 4,168,800.00 10 Fixed 200,000.00 520,000.00 720,000.00 11 Total expenses $1,697,600.00 $4,688,800.00 $6,386,400.00 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. Required: 1. Would the market price of $150 per unit be an appropriate transfer price for Garcon Inc.? Explain. 2. If the Commercial Division purchased 2,880 units from the Consumer Division, rather than externally, at a negotiated transfer price of $115 per unit, how much would the income from operations of each division and the total company income from operations increase? 3. Prepare condensed divisional income statements for Garcon Inc. based on the data in Requirement 2. 4. If a transfer price of $126 per unit was negotiated, how much would the income from operations of each division and the total company income from operations increase? 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? 1. Would the market price of $150 per unit be an appropriate transfer price for Garcon Inc.? Explain. No . When unused capacity exists in the supplying division (the Consumer Division), the use of the market price approach may not lead to the maximization of total company income. Points: Check My Work 1. Review how transfer pricing functions. Remember the use of the market price approach may not lead to the maximization of total company income. 2. If the Commercial Division purchased 2,880 units from the Consumer Division, rather than externally, at a negotiated transfer price of $115 per unit, how much would the income from operations of each division and the total company income from operations increase? The Consumer Division's income from operations would increase by The Commercial Division's income from operations would increase by Garcon Inc.’s total income from operations would increase by Prepare condensed divisional income statements for Garcon Inc. based on the data in Requirement 2. Question not attempted. Score: 0/96 Garcon Inc. Divisional Income Statements For the Year Ended December 31, 20Y8 1 Consumer Division Commercial Division Total 2 Sales: 3 14,400 units 4 2,880 units 5 21,600 units 6 7 Expenses: 8 Variable: 9 17,280 units 10 2,880 units 11 18,720 units 12 Fixed 13 Total expenses 14 Income from operations If a transfer price of $126 per unit was negotiated, how much would the income from operations of each division and the total company income from operations increase? The Consumer Division's income from operations would increase by The Commercial Division's income from operations would increase by Garcon Inc.'s total income from operations would increase by 4. Multiply the units transferred by the difference between the transfer price and the variable cost per unit (supplying company) or the market price and the transfer price (purchasing company). 5a. What is the range of possible negotiated transfer prices that would be acceptable for Garcon Inc.? Any transfer price greater than the Consumer Division’s variable expenses per unit but less than the market price would be acceptable. 5b. Assuming that the managers of the two divisions cannot agree on a transfer price, what price would you suggest as the transfer price? Transfer price would be?

Garcon Inc. manufactures electronic products, with two operating divisions, the Consumer and Commercial divisions. Condensed divisional income statements, which involve no intracompany transfers and include a breakdown of expenses into variable and fixed components, are as follows: Garcon Inc. Divisional Income Statements For the Year Ended December 31, 20Y8 1 Consumer Division Commercial Division Total 2 Sales: 3 14,400 units @ $144 per unit $2,073,600.00 $2,073,600.00 4 21,600 units @ $275 per unit $5,940,000.00 5,940,000.00 5 $2,073,600.00 $5,940,000.00 $8,013,600.00 6 Expenses: 7 Variable: 8 14,400 units @ $104 per unit $1,497,600.00 $1,497,600.00 9 21,600 units @ $193* per unit $4,168,800.00 4,168,800.00 10 Fixed 200,000.00 520,000.00 720,000.00 11 Total expenses $1,697,600.00 $4,688,800.00 $6,386,400.00 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. Required: 1. Would the market price of $150 per unit be an appropriate transfer price for Garcon Inc.? Explain. 2. If the Commercial Division purchased 2,880 units from the Consumer Division, rather than externally, at a negotiated transfer price of $115 per unit, how much would the income from operations of each division and the total company income from operations increase? 3. Prepare condensed divisional income statements for Garcon Inc. based on the data in Requirement 2. 4. If a transfer price of $126 per unit was negotiated, how much would the income from operations of each division and the total company income from operations increase? 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? 1. Would the market price of $150 per unit be an appropriate transfer price for Garcon Inc.? Explain. No . When unused capacity exists in the supplying division (the Consumer Division), the use of the market price approach may not lead to the maximization of total company income. Points: Check My Work 1. Review how transfer pricing functions. Remember the use of the market price approach may not lead to the maximization of total company income. 2. If the Commercial Division purchased 2,880 units from the Consumer Division, rather than externally, at a negotiated transfer price of $115 per unit, how much would the income from operations of each division and the total company income from operations increase? The Consumer Division's income from operations would increase by The Commercial Division's income from operations would increase by Garcon Inc.’s total income from operations would increase by Prepare condensed divisional income statements for Garcon Inc. based on the data in Requirement 2. Question not attempted. Score: 0/96 Garcon Inc. Divisional Income Statements For the Year Ended December 31, 20Y8 1 Consumer Division Commercial Division Total 2 Sales: 3 14,400 units 4 2,880 units 5 21,600 units 6 7 Expenses: 8 Variable: 9 17,280 units 10 2,880 units 11 18,720 units 12 Fixed 13 Total expenses 14 Income from operations If a transfer price of $126 per unit was negotiated, how much would the income from operations of each division and the total company income from operations increase? The Consumer Division's income from operations would increase by The Commercial Division's income from operations would increase by Garcon Inc.'s total income from operations would increase by 4. Multiply the units transferred by the difference between the transfer price and the variable cost per unit (supplying company) or the market price and the transfer price (purchasing company). 5a. What is the range of possible negotiated transfer prices that would be acceptable for Garcon Inc.? Any transfer price greater than the Consumer Division’s variable expenses per unit but less than the market price would be acceptable. 5b. Assuming that the managers of the two divisions cannot agree on a transfer price, what price would you suggest as the transfer price? Transfer price would be?

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter10: Evaluating Decentralized Operations

Section: Chapter Questions

Problem 5PB: Divisional performance analysis and evaluation The vice president of operations of Free Ride Bike...

See similar textbooks

Related questions

Question

100%

Garcon Inc.

Divisional Income Statements

For the Year Ended December 31, 20Y8

1		Consumer Division	Commercial Division	Total
2	Sales:
3	14,400 units @ $144 per unit	$2,073,600.00		$2,073,600.00
4	21,600 units @ $275 per unit		$5,940,000.00	5,940,000.00
5		$2,073,600.00	$5,940,000.00	$8,013,600.00
6	Expenses:
7	Variable:
8	14,400 units @ $104 per unit	$1,497,600.00		$1,497,600.00
9	21,600 units @ $193* per unit		$4,168,800.00	4,168,800.00
10	Fixed	200,000.00	520,000.00	720,000.00
11	Total expenses	$1,697,600.00	$4,688,800.00	$6,386,400.00
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.

	Required:
	1. Would the market price of $150 per unit be an appropriate transfer price for Garcon Inc.? Explain.
	2. If the Commercial Division purchased 2,880 units from the Consumer Division, rather than externally, at a negotiated transfer price of $115 per unit, how much would the income from operations of each division and the total company income from operations increase?
	3. Prepare condensed divisional income statements for Garcon Inc. based on the data in Requirement 2.
	4. If a transfer price of $126 per unit was negotiated, how much would the income from operations of each division and the total company income from operations increase?
	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?

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

No . When unused capacity exists in the supplying division (the Consumer Division), the use of the market price approach may not lead to the maximization of total company income.

Points:

Check My Work

1. Review how transfer pricing functions. Remember the use of the market price approach may not lead to the maximization of total company income.

2. If the Commercial Division purchased 2,880 units from the Consumer Division, rather than externally, at a negotiated transfer price of $115 per unit, how much would the income from operations of each division and the total company income from operations increase?

The Consumer Division's income from operations would increase by

The Commercial Division's income from operations would increase by

Garcon Inc.’s total income from operations would increase by

Prepare condensed divisional income statements for Garcon Inc. based on the data in Requirement 2.

Question not attempted.

Score: 0/96

Garcon Inc.

Divisional Income Statements

For the Year Ended December 31, 20Y8

1		Consumer Division	Commercial Division	Total
2	Sales:
3	14,400 units
4	2,880 units
5	21,600 units
6
7	Expenses:
8	Variable:
9	17,280 units
10	2,880 units
11	18,720 units
12	Fixed
13	Total expenses
14	Income from operations

If a transfer price of $126 per unit was negotiated, how much would the income from operations of each division and the total company income from operations increase?

The Consumer Division's income from operations would increase by

The Commercial Division's income from operations would increase by

Garcon Inc.'s total income from operations would increase by

4. Multiply the units transferred by the difference between the transfer price and the variable cost per unit (supplying company) or the market price and the transfer price (purchasing company).

5a. What is the range of possible negotiated transfer prices that would be acceptable for Garcon Inc.?

Any transfer price greater than the Consumer Division’s variable expenses per unit but less than the market price would be acceptable.

5b. Assuming that the managers of the two divisions cannot agree on a transfer price, what price would you suggest as the transfer price?

Transfer price would be?

Expert Solution

Trending now

This is a popular solution!

Step by step

Solved in 4 steps with 4 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.