Mouton & Perrier, Inc., has a number of divisions that produce liquors, bottled water, and glassware. The Glassware Division manufactures a variety of bottles that can be sold externally (to soft-drink and juice bottlers) or internally to Mouton & Perrier’s Bottled Water Division. Sales and cost data on a case of 24 basic 12-ounce bottles are as follows: During the coming year, the Glassware Division expects to sell 390,000 cases of this bottle. The Bottled Water Division currently plans to buy 100,000 cases on the outside market for $2.95 each. Ellyn Burridge, manager of the Glassware Division, approached Justin Thomas, manager of the Bottled Water Division, and offered to sell the 100,000 cases for $2.89 each. Ellyn explained to Justin that she can avoid selling costs of $0.12 per case by selling internally and that she would split the savings by offering a $0.06 discount on the usual price. Required: 1. What is the minimum transfer price that the Glassware Division would be willing to accept? What is the maximum transfer price that the Bottled Water Division would be willing to pay? Should an internal transfer take place? What would be the benefit (or loss) to the firm as a whole if the internal transfer takes place? 2. Suppose Justin knows that the Glassware Division has idle capacity. Do you think that he would agree to the transfer price of $2.89? Suppose he counters with an offer to pay $2.40. If you were Ellyn, would you be interested in this price? Explain with supporting computations. 3. Suppose that Mouton & Perrier’s policy is that all internal transfers take place at full manufacturing cost. What would the transfer price be? Would the transfer take place?

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Cornerstones of Cost Management (C...

4th Edition
Don R. Hansen + 1 other
Publisher: Cengage Learning
ISBN: 9781305970663
BuyFind

Cornerstones of Cost Management (C...

4th Edition
Don R. Hansen + 1 other
Publisher: Cengage Learning
ISBN: 9781305970663

Solutions

Chapter 10, Problem 12E
Textbook Problem

Mouton & Perrier, Inc., has a number of divisions that produce liquors, bottled water, and glassware. The Glassware Division manufactures a variety of bottles that can be sold externally (to soft-drink and juice bottlers) or internally to Mouton & Perrier’s Bottled Water Division. Sales and cost data on a case of 24 basic 12-ounce bottles are as follows:

Chapter 10, Problem 12E, Mouton  Perrier, Inc., has a number of divisions that produce liquors, bottled water, and glassware.

During the coming year, the Glassware Division expects to sell 390,000 cases of this bottle. The Bottled Water Division currently plans to buy 100,000 cases on the outside market for $2.95 each. Ellyn Burridge, manager of the Glassware Division, approached Justin Thomas, manager of the Bottled Water Division, and offered to sell the 100,000 cases for $2.89 each. Ellyn explained to Justin that she can avoid selling costs of $0.12 per case by selling internally and that she would split the savings by offering a $0.06 discount on the usual price.

Required:

  1. 1. What is the minimum transfer price that the Glassware Division would be willing to accept? What is the maximum transfer price that the Bottled Water Division would be willing to pay? Should an internal transfer take place? What would be the benefit (or loss) to the firm as a whole if the internal transfer takes place?
  2. 2. Suppose Justin knows that the Glassware Division has idle capacity. Do you think that he would agree to the transfer price of $2.89? Suppose he counters with an offer to pay $2.40. If you were Ellyn, would you be interested in this price? Explain with supporting computations.
  3. 3. Suppose that Mouton & Perrier’s policy is that all internal transfers take place at full manufacturing cost. What would the transfer price be? Would the transfer take place?

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Chapter 10 Solutions

Cornerstones of Cost Management (Cornerstones Series)
Ch. 10 - What is the transfer pricing problem?Ch. 10 - If the minimum transfer price of the selling...Ch. 10 - If an outside, perfectly competitive market exists...Ch. 10 - Identify three cost-based transfer prices. What...Ch. 10 - What is the purpose of Internal Revenue Code...Ch. 10 - Forchen, Inc., provided the following information...Ch. 10 - Refer to Cornerstone Exercise 10.1. Forchen, Inc.,...Ch. 10 - Ignacio, Inc., had after-tax operating income last...Ch. 10 - Carreker, Inc., has a number of divisions,...Ch. 10 - Refer to Cornerstone Exercise 10.4. Required: 1....Ch. 10 - Clanahan, Inc., has a number of divisions around...Ch. 10 - Jarriot, Inc., presented two years of data for its...Ch. 10 - Refer to Exercise 10.7 for data. At the end of...Ch. 10 - Refer to the data given in Exercise 10.8....Ch. 10 - Brewster Company manufactures elderberry wine....Ch. 10 - Xenold, Inc., manufactures and sells cooktops and...Ch. 10 - Mouton Perrier, Inc., has a number of divisions...Ch. 10 - Jocassee Furniture Manufacturing, Inc., has a...Ch. 10 - Sugarland, Inc., has a division in Indonesia that...Ch. 10 - Mossfort, Inc., has a division in Canada that...Ch. 10 - A multinational corporation has a number of...Ch. 10 - Consider the data for each of the following four...Ch. 10 - The following selected data pertain to the Argent...Ch. 10 - Fermat, Inc., has acquired two new companies, one...Ch. 10 - The key difference between residual income and EVA...Ch. 10 - If sales and average operating assets for Year 2...Ch. 10 - Anders Company provided the following information:...Ch. 10 - Refer to 10.22. If the imputed interest rate is...Ch. 10 - A company had WACC (weighted average cost of...Ch. 10 - Fillmore Industries is a vertically integrated...Ch. 10 - Raddington Industries produces tool and die...Ch. 10 - Lawanna Davis graduated from State U with a major...Ch. 10 - Ardmore, Inc., manufactures heating and air...Ch. 10 - Oriole, Inc., owns a number of food service...Ch. 10 - Corning Company has a decentralized organization...Ch. 10 - Greg Peterson has recently been appointed vice...Ch. 10 - Renslen, Inc., a truck manufacturing conglomerate,...Ch. 10 - Jump Start Company (JSC), a subsidiary of Mason...Ch. 10 - Carnover, Inc., manufactures a broad line of...Ch. 10 - Grate Care Company specializes in producing...

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