MANGERIAL ACCT. W/CONNECT CUST.>CUSTOM
16th Edition
ISBN: 9781308329840
Author: Garrison
Publisher: MCG/CREATE
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Textbook Question
Chapter 11.A, Problem 3E
EXERCISE 11A-3 Transfer Pricing Situations LO11-5
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.
Required:
- Refer to the data in case A above. Assume in this case that $3 per unit in variable selling costs can be avoided on intracompany sales.
- What is the lowest acceptable transfer price from the perspective of the selling division?
- What is the highest acceptable transfer price from the perspective of the buying division?
- What is file range of acceptable transfer prices (if any) between the two divisions1 If the managers are free to negotiate and make decisions on their own, will a transfer probably take place? Explain.
- 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?
- What is the highest acceptable transfer price from the perspective of the buying division?
- What is the range of acceptable transfer prices (if any) between the two divisions? If the managers are free to negotiate and make decisions on their own, will a transfer probably take place? Explain.
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Exercise 11-13 (Algo) Transfer Pricing Situations [LO11-3]
[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
A
B
Division X:
Capacity in units
Number of units being sold to outside customers
Selling price per unit to outside customers
95,000
95,000
96,000
79,000
$ 50
$ 30
Variable costs per unit
Fixed costs per unit (based on capacity)
Division Y:
$ 28
$ 12
$ 6
$ 4
Number of units needed for production
17,000
17,000
Purchase price per unit now being paid to an outside
supplier
$ 43
$ 24
Exercise 11-13 (Algo) Part 2
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…
Exercise 8 (Transfer Pricing Situations)
In each of the cases below, assume that Division A has 'a product that can be
sold either to outside customers or to Division B of the same company for use
in its production process. The managers of the divisions are evaluated based
on their divisional profits.
Case
1
2
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).
100,000
100,000
P50
P30
100,000
80,000
P35
P20
P 8
Division Y:
Number of units needed for production...
Purchase price per unit now being paid to an outside
supplier..
20,000
20,000
P47
Р34
Required:
1. Refer to the data in case A above. Assume that P2 per unit in variable
selling costs can be avoided on intracompany sales. If the managers are
free to negotiate and make decisions on their own, will a transfer take
place? If so, within what range will the transfer price fall? Explain.
2.…
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…
Chapter 11 Solutions
MANGERIAL ACCT. W/CONNECT CUST.>CUSTOM
Ch. 11.A - Prob. 1ECh. 11.A - EXERCISE 11A-2 Transfer Pricing from the Viewpoint...Ch. 11.A - EXERCISE 11A-3 Transfer Pricing Situations LO11-5...Ch. 11.A - PROBLEM 11A-4 Transfer Price with an Outside...Ch. 11.A - Prob. 5PCh. 11.A - Prob. 6PCh. 11.A - Prob. 7CCh. 11.B - EXERCISE 11B-1 Service Department Charges L011-6...Ch. 11.B - Prob. 2ECh. 11.B - Prob. 3E
Ch. 11.B - Prob. 4PCh. 11.B - Prob. 5PCh. 11 - Prob. 1QCh. 11 - Prob. 2QCh. 11 - Prob. 3QCh. 11 - Prob. 4QCh. 11 - Prob. 5QCh. 11 - Prob. 6QCh. 11 - What is the difference between delivery cycle time...Ch. 11 - Prob. 8QCh. 11 - Prob. 9QCh. 11 - Prob. 10QCh. 11 - Prob. 1AECh. 11 - Prob. 2AECh. 11 - Prob. 1F15Ch. 11 - Prob. 2F15Ch. 11 - Prob. 3F15Ch. 11 - Prob. 4F15Ch. 11 - Prob. 5F15Ch. 11 - Prob. 6F15Ch. 11 - Prob. 7F15Ch. 11 - Prob. 8F15Ch. 11 - Prob. 9F15Ch. 11 - Prob. 10F15Ch. 11 - Prob. 11F15Ch. 11 - (
$1,000,000
300,000
700,000
500.000
$
200,000
...Ch. 11 - Prob. 13F15Ch. 11 - Prob. 14F15Ch. 11 - Prob. 15F15Ch. 11 - Prob. 1ECh. 11 - Prob. 2ECh. 11 - EXERCISE 11-3 Measures of Internal Business...Ch. 11 -
EXERCISE 11-4 Building a Balanced Scorecard...Ch. 11 - Prob. 5ECh. 11 - Prob. 6ECh. 11 - Prob. 7ECh. 11 - Prob. 8ECh. 11 -
EXERCISE 11-9 Return on Investment (ROI) and...Ch. 11 - Prob. 10ECh. 11 - Prob. 11ECh. 11 - Prob. 12ECh. 11 - Prob. 13ECh. 11 - Prob. 14PCh. 11 - Prob. 15PCh. 11 - Prob. 16PCh. 11 - Prob. 17PCh. 11 - Prob. 18PCh. 11 - Prob. 19PCh. 11 - Prob. 20PCh. 11 - PROBLEM 11-21 Creating Balanced Scorecards that...Ch. 11 - Prob. 22PCh. 11 - CASE 11-23 Balanced Scorecard L011-4
Haglund...
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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…arrow_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_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
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- If the minimum transfer price of the selling division is less than the maximum transfer price of the buying division, the intermediate product should be transferred internally. Do you agree or disagree? Why?arrow_forwardMany organizations use transfer pricing when transferring products between different divisions of the same organisation. Critically discuss the advantages and disadvantages of the method: Negociated transfer price. Note: Define, explain gives examples and advantages and disadvantagesarrow_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
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