1a.
Introduction:
The transfer price refers to the price at which the goods and services are exchanged between companies under common control or between divisions of the same company.
The value of the lowest transfer price acceptable by the selling division.
1b.
Introduction:
The transfer price refers to the price at which the goods and services are exchanged between companies under common control or between divisions of the same company.
The value of the highest transfer price acceptable to the buying division.
1c.
Introduction:
The transfer price refers to the price at which the goods and services are exchanged between companies under common control or between divisions of the same company.
The range of acceptable transfer prices between two divisions and will the transfer take place or not.
2a.
Introduction:
The transfer price refers to the price at which the goods and services are exchanged between companies under common control or between divisions of the same company.
The value of the lowest transfer price acceptable by the selling division.
Introduction:
The transfer price refers to the price at which the goods and services are exchanged between companies under common control or between divisions of the same company.
The value of the highest transfer price acceptable to the buying division.
2c.
Introduction:
The transfer price refers to the price at which the goods and services are exchanged between companies under common control or between divisions of the same company.
The range of acceptable transfer prices and will the transfer take place or not.
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MANAGERIAL ACCOUNTING
- 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…arrow_forwardExercise 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…arrow_forwardQuestion 3 Spark Ltd has two divisions, assembly and electrical. The assembly division transfers partially completed components to the electrical division at a predetermined transfer price. The assembly division’s standard variable production cost per unit is $550. This division has spare capacity, and it could sell all its components to outside buyers at $680 per unit in a perfectly competitive market. Required: Determine a transfer price using the general rule. How would the transfer price change if the assembly division had no spare capacity? What transfer price would you recommend if there was no outside market for the transferred component and the assembly division had spare capacity? How negotiation between the supplying and buying units may be used to set transfer prices. How does this relate to the general transfer pricing rule?arrow_forward
- 12 & 14 Recap Saved Help Save Required information [The following information applies to the questions displayed below.] In each of the cases below, assume Division X has a product that can be sold either to outside customers or to Division Y of the same company for use in its production process. The managers of the divisions are evaluated based on their divisional profits. Case Division X: Capacity in units Number of units being sold to outside customers Selling price per unit to outside customers Variable costs per unit Fixed costs per unit (based on capacity) Division Y: 103,000 103,000 95,000 77,000 59 $ 29 $ 10 $ 29 %2$ 15 5 Number of units needed for production Purchase price per unit now being paid to an outside supplier 18,000 18,000 53 $ 30 Required: 2. Refer to the data in case B above. In this case, there will be no savings in variable selling costs on intracompany sales. a. What is the lowest acceptable transfer price from the perspective of the selling division? b. What is…arrow_forwardQuestion Content Area The approach that requires the transfer price to be less than the market price but greater than the supplying division's variable costs per unit is called the _____ approach. a.negotiated cost b.cost price c.standard cost d.market pricearrow_forwardWhen the selling division in an Internal transfer can sell every product at Its market price, then the lowest acceptable transter price as far as the seling diion is concened is Multiple Cholce The amount that the purchasing division would have to pay an outslde seller to acquire a similar product for Its use. The fixed cost of producing a unit of product. The market price charged to outside customers. The variable cost of producing a unit of product. Total cost of producing a unit of product.arrow_forward
- General Transfer Pricing Rule; Goal Congruence American Motors Inc. is divided, for performance evaluation purposes, into several divisions. The Automobile Division of American Motorspurchases most of its transmission systems from another unit of the company. The TransmissionDivision’s incremental cost for manufacturing a standard transmission is approximately $1,350 perunit. This division is currently working at 75% of capacity. The current market price for a standardtransmission is approximately $1,875.Required2. Suppose now that American Motors requires that whenever divisions with excess capacity sell their output internally to other divisions of the company, they must do so at the incremental cost of the supplying (producing) division. Evaluate this transfer pricing rule vis-à-vis each of the following objectives:autonomy, goal congruence, performance evaluation of the divisions, and motivation/incentive effects.3. If the two divisions of American Motors were to negotiate a…arrow_forwardThe 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…arrow_forwardGeneral Transfer Pricing Rule; Goal Congruence American Motors Inc. is divided, for performance evaluation purposes, into several divisions. The Automobile Division of American Motorspurchases most of its transmission systems from another unit of the company. The TransmissionDivision’s incremental cost for manufacturing a standard transmission is approximately $1,350 perunit. This division is currently working at 75% of capacity. The current market price for a standardtransmission is approximately $1,875.Required2. Suppose now that American Motors requires that whenever divisions with excess capacity sell their output internally to other divisions of the company, they must do so at the incremental cost of the supplying (producing) division. Evaluate this transfer pricing rule vis-à-vis each of the following objectives:autonomy, goal congruence, performance evaluation of the divisions, and motivation/incentive effectsarrow_forward
- Check m A division can sell externally for $73 per unit. Its variable manufacturing costs are $42 per unit, and its variable marketing costs are $20 per unit. What is the optimal transfer price for transferring internally, assuming the division is operating at capacity? to search Multiple Choice O $20 $42 $62 $73 I Hi 37°F Cloudy ^4arrow_forward1. “Transfer pricing is confined to profit centres”. Do you agree? Why? 2. Give three general methods for determining transfer prices. 3. What properties should transfer-pricing systems have? 4. “All transfer-pricing methods give the same division operating income.” Do you agree? Explain. 5. Under what conditions is a market-based transfer price optimal? 6. What is one potential limitation of full cost-based transfer pricing?arrow_forwardGeneral Transfer Pricing Rule Scottsdale Manufacturing is organized into two divisions:Fabrication and Assembly. Components transferred between the two divisions are recorded at a predetermined transfer price. Standard variable manufacturing cost per unit in the Fabrication Divisionis $500. At the present time, this division is working to capacity. Fabrication estimates that the unitsit produces could be sold on the external market for $650. The product under consideration is viewedas a commodity-type product, with no differentiating features or characteristics.Required1. What roles are played by transfer prices? That is, why are transfer prices needed?2. Use the general transfer pricing rule presented in the chapter to determine an appropriate transfer price.Why is the amount you calculated considered an appropriate transfer price?3. What if the Fabrication Division had excess capacity? How would this change the indicated transferprice? Why is the amount you determined considered an…arrow_forward
- Cornerstones of Cost Management (Cornerstones Ser...AccountingISBN:9781305970663Author:Don R. Hansen, Maryanne M. MowenPublisher:Cengage LearningManagerial Accounting: The Cornerstone of Busines...AccountingISBN:9781337115773Author:Maryanne M. Mowen, Don R. Hansen, Dan L. HeitgerPublisher:Cengage Learning