CONNECT ONLINE ACCESS F/MANAGERIAL ACC.
6th Edition
ISBN: 9781264445356
Author: Noreen
Publisher: MCG
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Chapter 11, Problem 11.25P
Basic Transfer Pricing LO 11–3
Alpha and Beta are divisions within the same company. The managers of both divisions are evaluated based on their own division’sreturn on investment (
Required:
- Refer to case 1 shown above. Alpha Division can avoid $2 per unit in commissions on any sales to Beta Division.
- What is Alpha Divisions’s lowest acceptable transfer price?
- What is Beta Division’s highest acceptable transfer price?
- What is the range of acceptable transfer prices (if any) between the two divisions? Will the managers probably agree to a transfer? Explain.
- Refer to case 2 shown above. A study indicates Alpha Division can avoid $5 per unit in shipping costs on any sales to Beta Division.
- What is Alpha Divisions’s lowest acceptable transfer price?
- What is Beta Division’s highest acceptable transfer price?
- What is the range of acceptable transfer prices (if any) between the two divisions? Would you expect any disagreement between the two divisional managers over what the exact transfer price should be? Explain.
- Assume Alpha Division offers to sell 30,000 units to Beta Division for $88 per unit and that Beta Division refuses this price. What will be the loss in potential profits for the company as a whole?
- Refer to case 3 shown above. Assume Beta Division is now receiving an 8% price discount from the outside supplier.
- What is Alpha Divisions’s lowest acceptable transfer price?
- What is Beta Division’s highest acceptable transfer price?
- What is the range of acceptable transfer prices (if any) between the two divisions? Will the managers probably agree to a transfer? Explain.
- Assume Beta Division offers to purchase 20,000 units from Alpha Division at $60 per unit. If Alpha Division accepts this price, would you expect its ROI to increase, decrease, or remain unchanged? Why?
- Refer to case 4 shown above. Assume Beta Division wants Alpha Division to provide it with 120,000 units of a different product from the one Alpha Division is producing now. The new product would require $21 per unit in variable costs and would require that Alpha Division cut back production of its present product by 45,000 units annually. What is Alpha Division’s lowest acceptable transfer price?
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The Fruity Bakers specialize in making delicious cakes. Their trademark fruit cake is
made in Division X (the supplying division) and sold to external customers for them
to decorate, or it can be enjoyed plain. It is also transferred to Division Y (the
receiving division) where it is iced and decorated to be sold as a luxury wedding cake.
Fruity Bakers are currently trying to decide what the optimum price to sell the cakes
from Division X to Y should be in order to motivate the managers of both divisions.
The following data shows the costs incurred by Division X to make a fruit cake and
by Division Y to ice and decorate the wedding cake:
$/unit
Division X
Variable costs
22
Fixed overhead
9
31
Division Y
Variable costs
33
Fixed overhead
8.
41
Plain fruit cakes can be sold and purchased externally for $35.
Wedding cakes can be sold for $80.
Instructions:
1. Should the company make the fruit cakes internally or buy them in?
2. What non-financial factors should also be taken into…
Basic Transfer Pricing
Alpha and Beta are divisions within the same company. The managers of both divisions are evaluated based on their own division’s return on investment (ROI). Assume the following information relative to the two divisions:
Managers are free to decide if they will participate in any internal transfers. All transfer prices are negotiated.
Required:
1. Refer to case 1 shown above. Alpha Division can avoid $2 per unit in commissions on any sales to Beta Division.
a. What is the lowest acceptable transfer price from the perspective of the Alpha Division?
b. What is the highest acceptable transfer price from the perspective of the Beta Division?
c. What is the range of acceptable transfer prices (if any) between the two divisions? Will the managers probably agree to a transfer? Explain.
2. Refer to case 2 shown above. A study indicates that Alpha Division can avoid $5 per unit in shipping costs on any sales to Beta Division.
a. What is the lowest acceptable transfer…
Exercise 15-34 (Algo) Evaluate Transfer Pricing System: Negotiated Rates (LO 15-2, 3)
Tops Corporation is organized into two divisions, Manufacturing and Marketing. Both divisions are considered to be profit centers and
the two division managers are evaluated in large part on divisional income. The company makes a single product. It is fabricated in
Manufacturing and then packaged and sold in Marketing. There is no intermediate market for the product.
The monthly income statements, in thousands of dollars, for the two divisions follow. Production and sales amounted to 15,000 units.
Revenues
Variable costs
Contribution margin
Fixed costs
Manufacturing
$4,500
3,900
$.
Marketing
$15, 000
6,700
$ 8,300
600
300
800
Divisional profit
$.
300
$ 7,500
Assume there is no speclal order pending.
Required:
a. What transfer price would you recommend for Tops Corporation?
b. Using your recommended transfer price, what will be the income of the two divisions, assuming monthly production and sales of…
Chapter 11 Solutions
CONNECT ONLINE ACCESS F/MANAGERIAL ACC.
Ch. 11 - Prob. 11.1QCh. 11 - Prob. 11.2QCh. 11 - Prob. 11.3QCh. 11 - Prob. 11.4QCh. 11 - Prob. 11.5QCh. 11 - Prob. 11.6QCh. 11 - Prob. 11.7QCh. 11 - Prob. 11.8QCh. 11 - Prob. 11.9QCh. 11 - Why is using sales dollars as an allocation base...
Ch. 11 - Prob. 1AECh. 11 - Prob. 1TF15Ch. 11 - Prob. 11.1ECh. 11 - Prob. 11.2ECh. 11 - Prob. 11.3ECh. 11 - Prob. 11.4ECh. 11 - Prob. 11.5ECh. 11 - Prob. 11.6ECh. 11 - Prob. 11.7ECh. 11 - Prob. 11.8ECh. 11 - Prob. 11.9ECh. 11 - Prob. 11.10ECh. 11 - Prob. 11.11ECh. 11 - Prob. 11.12ECh. 11 - Prob. 11.13ECh. 11 - Prob. 11.14ECh. 11 - Prob. 11.15ECh. 11 - Prob. 11.16ECh. 11 - Prob. 11.17PCh. 11 - Prob. 11.18PCh. 11 - Prob. 11.19PCh. 11 - Prob. 11.20PCh. 11 - Prob. 11.21PCh. 11 - Service Department Charges LO 11–4 Sharp Motor...Ch. 11 - Prob. 11.23PCh. 11 - Prob. 11.24PCh. 11 - Basic Transfer Pricing LO 11–3 Alpha and Beta...Ch. 11 - Prob. 11.26C
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