Need to remaining empty boxes Req 1AReq 1BReq 1CWhat is the range of acceptable transfer prices (if any) between the two divisions?make decisions on their own, will a transfer probably take place?Identify the range of acceptable transfer prices (if any):There is not a range of acceptable transfer prices.There is a range of acceptable transfer prices as shown below:Transfer priceAre the managers likely to agree on a transfer price?OYesNo In each of the cases below, assume Division X has a product that can be sold either to outsidecustomers or to Division Y of the same company for use in its production process. The managers ofthe divisions are evaluated based on their divisional profits.CaseABDivision X:Capacity in unitsNumber of units being sold to outside customers101,000101,000$2$93,00071,000Selling price per unit to outside customersVariable costs per unitFixed costs per unit (based on capacity)54 $28 $29148.4.Division Y:Number of units needed for productionPurchase price per unit now being paidto an outside supplier22,00022,000$50 $28Required:1. Refer to the data in case A above. Assume in this case that $2 per unit in variable selling costs can be avoided onintracompany 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 tonegotiate and make decisions on their own, will a transfer probably take place?

Transfer Price refers to price at which one department of an entity transfer its output to other…

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 Number of units being sold to outside customers Selling price per unit to outside customers Variable costs per unit Fixed costs per unit (based on capacity) 101,000 101,000 2$ 93,000 71,000 54 $ 29 28 $ 14 8 $ 4. Division Y: Number of units needed for production Purchase price per unit now being paid to an outside supplier 22,000 22,000 $ 50 $ 28 Required: 1. Refer to the data in case A above. Assume in this case that $2 per unit in variable selling costs can be avoided 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?

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 Number of units being sold to outside customers Selling price per unit to outside customers Variable costs per unit Fixed costs per unit (based on capacity) 101,000 101,000 2$ 93,000 71,000 54 $ 29 28 $ 14 8 $ 4. Division Y: Number of units needed for production Purchase price per unit now being paid to an outside supplier 22,000 22,000 $ 50 $ 28 Required: 1. Refer to the data in case A above. Assume in this case that $2 per unit in variable selling costs can be avoided 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?

Managerial Accounting: The Cornerstone of Business Decision-Making

7th Edition

ISBN:9781337115773

Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Chapter11: Performance Evaluation And Decentralization

Section: Chapter Questions

Problem 9MCQ

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Communication The Norse Division of Gridiron Concepts Inc. experienced significant revenue and profit growth from 20Y4 to 20Y6 as shown in the following divisional income statements: There are no support department allocations, and the division operates as an investment center that must maintain a 15% return on invested assets. Determine the profit margin, investment turnover, and return on investment for the Norse Division for 20Y420Y6. Based on your computations, write a brief memo to the president of Gridiron Concepts Inc., Knute Holz, evaluating the divisions performance.
Assume you are the department B manager for Marleys Manufacturing. Marleys operates under a cost-based transfer structure. Assume you receive the majority of your raw materials from department A, which sells only o department B (they have no outside sales). After calculating the operating income in dollars and operating income in percentage, analyze the following financial information to determine costs that may need further investigation. (Hint: It may be helpful to perform a vertical analysis.)
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A multinational corporation has a number of divisions, two of which are the North American Division and the Pacific Rim Division. Data on the two divisions are as follows: Round all rates of return to four significant digits. Required: 1. Compute residual income for each division. By comparing residual income, is it possible to make a useful comparison of divisional performance? Explain. 2. Compute the residual rate of return by dividing the residual income by the average operating assets. Is it possible now to say that one division outperformed the other? Explain. 3. Compute the return on investment for each division. Can we make meaningful comparisons of divisional performance? Explain. 4. Add the residual rate of return computed in Requirement 2 to the required rate of return. Compare these rates with the ROI computed in Requirement 3. Will this relationship always be the same?
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