The X and Y Divisions are divisions in the same company. Currently the Y Division buys a part from X Division for P390 per unit. The X Division wants to increase the price of the part it sells to Y Division by P60 to P450. The manager of the Y Division has stated that he cannot pay that much insofar as the division's profit goes below zero. The manager of the Y Division can buy the part from an outside supplier for P448 per unit. The cost data pertaining to the part is supplied by the X Division: Direct materials P136.00 Direct labor 200.00 Variable overhead 40.00 Fixed overhead 38.40 A. If X Division does not produce the parts for the Y Division, it will be able to avoid one-third of the fixed manufacturing overhead costs. The X Division has excess capacity but no alternative uses for the facilities. Y Division will sell the finished product with the part (from X Division) for P1,000 after incurring additional processing costs of P600. What is the minimum and maximum transfer price per unit that for the part? B. What is the net advantage (disadvantage) to the company if the Y Division buys from the outside supplier?
The X and Y Divisions are divisions in the same company. Currently the Y Division buys a part from X Division for P390 per unit. The X Division wants to increase the price of the part it sells to Y Division by P60 to P450. The manager of the Y Division has stated that he cannot pay that much insofar as the division's profit goes below zero. The manager of the Y Division can buy the part from an outside supplier for P448 per unit. The cost data pertaining to the part is supplied by the X Division:
|
Direct materials |
P136.00 |
|
Direct labor |
200.00 |
|
Variable overhead |
40.00 |
|
Fixed overhead |
38.40 |
A. If X Division does not produce the parts for the Y Division, it will be able to avoid one-third of the fixed
B. What is the net advantage (disadvantage) to the company if the Y Division buys from the outside supplier?
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