Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN: 9781305970663
Author: Don R. Hansen, Maryanne M. Mowen
Publisher: Cengage Learning
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Question
Chapter 10, Problem 12E
1.
To determine
Identify the minimum transfer price that Division G would be willing to accept, identify the maximum transfer price that the Division BW would be willing to pay. Identify whether the internal transfer takes place or not, if yes compute the benefit or loss to the firm as a whole.
2.
To determine
Identify whether the Person E is interested in the change in the transfer price 2.40. Support the decision with calculations.
3.
To determine
In case, the internal transfer takes place at full
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Germano Products, Incorporated, has a Pump Division that manufactures and sells a number of products, including a standard pump that could be used by another division in the company, the Pool Products Division, in one of its products. Data concerning that pump appear below:
Capacity in units
72,500
Selling price to outside customers
$ 79
Variable cost per unit
$ 28
Fixed cost per unit (based on capacity)
$ 32
The Pool Products Division is currently purchasing 17,000 of these pumps per year from an overseas supplier at a cost of $74 per pump.
Assume that the Pump Division is selling all of the pumps it can produce to outside customers. Does there exist a transfer price that would make both the Pump and Pool Products Division financially better off than if the Pool Products Division were to continue buying its pumps from the outside supplier?
Germano Products, Incorporated, has a Pump Division that manufactures and sells a number of products, including a standard pump that could be used by another division in the company, the Pool Products Division, in one of its products. Data concerning that pump appear below:
Capacity in units
70,000
Selling price to outside customers
$ 77
Variable cost per unit
$ 27
Fixed cost per unit (based on capacity)
$ 31
The Pool Products Division is currently purchasing 16,000 of these pumps per year from an overseas supplier at a cost of $72 per pump.
Assume that the Pump Division is selling all of the pumps it can produce to outside customers. Does there exist a transfer price that would make both the Pump and Pool Products Division financially better off than if the Pool Products Division were to continue buying its pumps from the outside supplier?
Multiple Choice
Yes, both divisions are always better off regardless of whether the selling division has enough idle…
Aulman Inc. has a number of divisions, including a Furniture Division and a Motel Division. The Motel Division owns and operates a line of budget motels located along major highways. Each year, the Motel Division purchases furniture for the motel rooms. Currently, it purchases a basic dresser from an outside supplier for $40. The manager of the Furniture Division has approached the manager of the Motel Division about selling dressers to the Motel Division. The full product cost of a dresser is $29. The Furniture Division can sell all of the dressers it makes to outside companies for $40. The Motel Division needs 10,000 dressers per year; the Furniture Division can make up to 50,000 dressers per year. Also, assume that the company policy is that all transfer prices are negotiated by the divisions involved.
Required:
1. What is the maximum transfer price?
Which division sets it?
2. What is the minimum transfer price?
Which division sets it?
3. Conceptual Connection: If the…
Chapter 10 Solutions
Cornerstones of Cost Management (Cornerstones Series)
Ch. 10 - Prob. 1DQCh. 10 - Explain why firms choose to decentralize.Ch. 10 - Explain how access to local information can...Ch. 10 - What are margin and turnover? Explain how these...Ch. 10 - What are the three benefits of ROI? Explain how...Ch. 10 - What are two disadvantages of ROI? Explain how...Ch. 10 - What is residual income? Explain how residual...Ch. 10 - Prob. 8DQCh. 10 - Prob. 9DQCh. 10 - What is a transfer price?
Ch. 10 - Prob. 11DQCh. 10 - If the minimum transfer price of the selling...Ch. 10 - If an outside, perfectly competitive market exists...Ch. 10 - Prob. 14DQCh. 10 - Prob. 15DQCh. 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 - Prob. 4CECh. 10 - Prob. 5CECh. 10 - Prob. 6CECh. 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 - Prob. 12ECh. 10 - Jocassee Furniture Manufacturing, Inc., has a...Ch. 10 - Prob. 14ECh. 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 - Prob. 19ECh. 10 - The key difference between residual income and EVA...Ch. 10 - If sales and average operating assets for Year 2...Ch. 10 - Prob. 22ECh. 10 - Refer to 10.22. If the imputed interest rate is...Ch. 10 - A company had WACC (weighted average cost of...Ch. 10 - Prob. 25PCh. 10 - Raddington Industries produces tool and die...Ch. 10 - Prob. 27PCh. 10 - Prob. 28PCh. 10 - Oriole, Inc., owns a number of food service...Ch. 10 - Prob. 30PCh. 10 - Prob. 31PCh. 10 - Renslen, Inc., a truck manufacturing conglomerate,...Ch. 10 - Jump Start Company (JSC), a subsidiary of Mason...Ch. 10 - Prob. 34PCh. 10 - Grate Care Company specializes in producing...
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