What is the minimum of the transfer price range for a transfer between the two divisions? * Do not use money sign. Sample format: 11 The X Division of NUBD Co. uses 5,000 motor batteries per month in its production of cars. It presently buys all of the batteries it needs from three outside suppliers at an average cost of P100. The Y Division of NUBD Co. manufactures the exact type of battery that the X Division requires. The Y Division is presently operating at its capacity of 15,000 units per month and sells all of its output to a foreign car manufacturer at P105 per unit. Its cost structure (on 15,000 units) is: Variable production costs Variable selling costs All fixed costs P70 10 10 Assume that the Y Division would not incur any variable selling costs on units that are transferred internally.

What is the minimum of the transfer price range for a transfer between the two divisions? * Do not use money sign. Sample format: 11 The X Division of NUBD Co. uses 5,000 motor batteries per month in its production of cars. It presently buys all of the batteries it needs from three outside suppliers at an average cost of P100. The Y Division of NUBD Co. manufactures the exact type of battery that the X Division requires. The Y Division is presently operating at its capacity of 15,000 units per month and sells all of its output to a foreign car manufacturer at P105 per unit. Its cost structure (on 15,000 units) is: Variable production costs Variable selling costs All fixed costs P70 10 10 Assume that the Y Division would not incur any variable selling costs on units that are transferred internally.

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 22BEB: Calculating Transfer Price Teslum Inc. has a number of divisions, including the Machina Division, a...

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Morrill Company produces two different types of gauges: a density gauge and a thickness gauge. The segmented income statement for a typical quarter follows. Includes depreciation. The density gauge uses a subassembly that is purchased from an external supplier for 25 per unit. Each quarter, 2,000 subassemblies are purchased. All units produced are sold, and there are no ending inventories of subassemblies. Morrill is considering making the subassembly rather than buying it. Unit-level variable manufacturing costs are as follows: No significant non-unit-level costs are incurred. Morrill is considering two alternatives to supply the productive capacity for the subassembly. 1. Lease the needed space and equipment at a cost of 27,000 per quarter for the space and 10,000 per quarter for a supervisor. There are no other fixed expenses. 2. Drop the thickness gauge. The equipment could be adapted with virtually no cost and the existing space utilized to produce the subassembly. The direct fixed expenses, including supervision, would be 38,000, 8,000 of which is depreciation on equipment. If the thickness gauge is dropped, sales of the density gauge will not be affected. Required: 1. Should Morrill Company make or buy the subassembly? If it makes the subassembly, which alternative should be chosen? Explain and provide supporting computations. 2. Suppose that dropping the thickness gauge will decrease sales of the density gauge by 10 percent. What effect does this have on the decision? 3. Assume that dropping the thickness gauge decreases sales of the density gauge by 10 percent and that 2,800 subassemblies are required per quarter. As before, assume that there are no ending inventories of subassemblies and that all units produced are sold. Assume also that the per-unit sales price and variable costs are the same as in Requirement 1. Include the leasing alternative in your consideration. Now, what is the correct decision?
Materials used by the Instrument Division of Ziegler Inc. are currently purchased from outside suppliers at a cost of 1,350 per unit. However, the same materials are available from the Components Division. The Components Division has unused capacity and can produce the materials needed by the Instrument Division at a variable cost of 900 per unit. a. If a transfer price of 1,000 per unit is established and 75,000 units of materials are transferred, with no reduction in the Components Divisions current sales, how much would Ziegler Inc.s total operating income increase? b. How much would the Instrument Divisions operating income increase? c. How much would the Components Divisions operating income increase?
Emerald Island Company is considering building a manufacturing plant in County Kerry. Predicting sales of 100,000 units, Emerald Isle estimates the following expenses: An Irish firm that specializes in marketing will be engaged to sell the manufactured product and will receive a commission of 10% of the sales price. None of the U.S. home office expense will be allocated to the Irish facility. Required: 1. If the unit sales price is 2, how many units must be sold to break even? (Hint: First compute the variable cost per unit.) 2. Calculate the margin of safety ratio. 3. Calculate the contribution margin ratio.
Sell or Process Further, Basic Analysis Shenista Inc. produces four products (Alpha, Beta, Gamma, and Delta) from a common input. The joint costs for a typical quarter follow: The revenues from each product are as follows: Alpha, 100,000; Beta, 93,000; Gamma, 30,000; and Delta, 40,000. Management is considering processing Delta beyond the split-off point, which would increase the sales value of Delta to 75,000. However, to process Delta further means that the company must rent some special equipment that costs 15,400 per quarter. Additional materials and labor also needed will cost 8,500 per quarter. Required: 1. What is the operating profit earned by the four products for one quarter? 2. CONCEPTUAL CONNECTION Should the division process Delta further or sell it at split-off? What is the effect of the decision on quarterly operating profit?
Dimitri Designs has capacity to produce 30,000 desk chairs per year and is currently selling all 30,000 for $240 each. Country Enterprises has approached Dimitri to buy 800 chairs for $210 each. Dimitris normal variable cost is $165 per chair, including $50 per unit in direct labor per chair. Dimitri can produce the special order on an overtime shift, which means that direct labor would be paid overtime at 150% of the normal pay rate. The annual fixed costs will be unaffected by the special order and the contract will not disrupt any of Dimitris other operations. What will be the impact on profits of accepting the order?
Calculating Transfer Price Teslum Inc. has a number of divisions, including the Machina Division, a producer of high-end espresso makers, and the Java Division, a chain of coffee shops. Machina Division produces the EXP-100 model espresso maker that can be used by Java Division to create various coffee drinks. The market price of the EXP-100 model is 950, and the full cost of the EXP-100 model is 475. Required: 1. If Teslum has a transfer pricing policy that requires transfer at full cost, what will the transfer price be? Do you suppose that Machina and Java divisions will choose to transfer at that price? 2. If Teslum has a transfer pricing policy that requires transfer at market price, what would the transfer price be? Do you suppose that Machina and Java divisions would choose to transfer at that price? 3. Now suppose that Teslum allows negotiated transfer pricing and that Machina Division can avoid 135 of selling expense by selling to Java Division. Which division sets the minimum transfer price, and what is it? Which division sets the maximum transfer price, and what is it? Do you suppose that Machina and Java divisions would choose to transfer somewhere in the bargaining range?
Zena Technology sells arc computer printers for $55 per unit. Unit product costs are: A special order to purchase 15,000 arc printers has recently been received from another company and Zena has idle capacity to fill the order. Zena will incur an additional $2 per printer for additional labor costs due to a slight modification the buyer wants made to the original product. One-third of the manufacturing overhead costs is fixed and will be incurred no matter how many units are produced. When negotiating the price, what is the minimum selling price that Zena should accept for this special order?
Jansen Crafters has the capacity to produce 50,000 oak shelves per year and is currently selling 44,000 shelves for $32 each. Cutrate Furniture approached Jansen about buying 1,200 shelves for bookcases it is building and is willing to pay $26 for each shelf. No packaging will be required for the bulk order. Jansen usually packages shelves for Home Depot at a price of $1.50 per shell. The $1.50 per-shelf cost is included in the unit variable cost of $27, with annual fixed costs of $320.000. However, the $130 packaging cost will not apply in this case. The fixed costs will be unaffected by the special order and the company has the capacity to accept the order. Based on this information, what would be the profit if Jansen accepts the special order? A. Profits will decrease by $1,200. B. Profits will increase by $31,200. C. Profits will increase by $600. D. Profits will increase by $7,200.
Quest Motors, Inc., operates as a decentralized multidivision company. The Vivo division of Quest Motors purchases most of its airbags from the airbag division. The airbag division’s incremental cost for manufacturing the airbags is $90 per unit. The airbag division is currently working at 80% of capacity. The current market price of the airbags is $125 per unit. Q. Instead of allowing negotiation, suppose that Quest specifies a hybrid transfer price that “splits the difference” between the minimum and maximum prices from the divisions’ standpoint. What would be the resulting transfer price for airbags?
Among its divisions, Textron Inc., owns Kelly Aerospace, and Cessna Aircraft. The company is attempting to negotiate a transfer price for Kelly’s aircraft magnetos to Cessna. Calculate the range of acceptable transfer prices for each of the following situations. Cessna received a quote from its regular supplier for $77 per magneto. The company needs 5,000 magnetos per year. The following data applies to Kelly Aero. Show your work. Selling price per magneto $80 Variable cost per magneto $62 Fixed cost per unit (based on capacity) $8 Kelly Aero manufacturing capacity 25,000 magnetos A. Kelly Aero can sell 20,000 magnetos to other customers B. Kelly Aero can sell 22,500 magnetos to other customers C. Kelly Aero can sell 25,000 speakers to other customers…
Nelson Company's Radio Division currently is purchasing transistors from Charlotte Co. for $3.50 each. The total number of transistors needed is 8,000 per month. Nelson Company's Electronics Division can produce the transistors for a cost of $4.00 each, and it has plenty of capacity to manufacture the units. The $4.00 is made up of $3.25 in variable costs, and $0.75 in allocated fixed costs. The range of a possible transfer price should be a. $3.26 to $3.99 b. $3.51 to $3.99 c. $3.26 to $3.49 d. $3.25 to $3.50
The Windshield division of Fast Car Co. makes windshields for use in Fast Car’s Assembly division. The Windshield division incurs variable costs of $200 per windshield and has capacity to make 500,000 windshields per year. The market price is $450 per windshield. The Windshield division incurs total fixed costs of $3,000,000 per year. If the Windshield division has excess capacity, what is the range of possible transfer prices that could be used on transfers between the Windshield and Assembly divisions?