The X division of XYZ Company is currently operating at 60% capacity or 6,000 units. It produces a single product and sells all its production to outside customers for $17.50 per unit. Variable costs are $7 per unit, and fixed costs are $6 per unit at the current production level. Division Y, which currently purchases this product from an outside supplier for $16 per unit, would like to purchase the product from Division X. Division X will operate at 80% capacity to meet outside customers' and Division Y's demand. 1. If the two divisions agreed on a transfer price based on full cost at 80% capacity, what will be the transfer price? 2. What will be the increase (decrease) in total company's profit if Division X transfers to Division Y (in total)?

The X division of XYZ Company is currently operating at 60% capacity or 6,000 units. It produces a single product and sells all its production to outside customers for $17.50 per unit. Variable costs are $7 per unit, and fixed costs are $6 per unit at the current production level. Division Y, which currently purchases this product from an outside supplier for $16 per unit, would like to purchase the product from Division X. Division X will operate at 80% capacity to meet outside customers' and Division Y's demand. 1. If the two divisions agreed on a transfer price based on full cost at 80% capacity, what will be the transfer price? 2. What will be the increase (decrease) in total company's profit if Division X transfers to Division Y (in total)?

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 16BEA

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