Materials used by Angela Bread Company in producing Division A's product are currently purchased from outside suppliers at a cost of $30 per unit. However, the same materials are available from Division B. Division B has unused capacity and can produce the materials needed by Division A at a variable cost of $20 per unit. 1. Assuming transfer price of $25, how much would the income from operations of Division B increase? 2. If the negotiated price approach is used, what would be the range of acceptable transfer prices?
Materials used by Angela Bread Company in producing Division A's product are currently purchased from outside suppliers at a cost of $30 per unit. However, the same materials are available from Division B. Division B has unused capacity and can produce the materials needed by Division A at a variable cost of $20 per unit. 1. Assuming transfer price of $25, how much would the income from operations of Division B increase? 2. If the negotiated price approach is used, what would be the range of acceptable transfer prices?
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 17E: Materials used by the Instrument Division of Ziegler Inc. are currently purchased from outside...
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Materials used by Angela Bread Company in producing Division A's product are currently purchased from outside suppliers at a cost of $30 per unit. However, the same materials are available from Division B. Division B has unused capacity and can produce the materials needed by Division A at a variable cost of $20 per unit.
1. Assuming transfer price of $25, how much would the income from operations of Division B increase?
2. If the negotiated price approach is used, what would be the range of acceptable transfer prices?
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