1.
Compute lowest and highest acceptable transfer price, range of acceptable transfer prices, and should company transfer carried out or reject.
Introduction: Transfer prices means the price charged on the product or service provided by on department of the company to another department of the company. Divisions are evaluated on the profit basis, or residual income price must be fixed for the transfer. Prices charged in these situations are referred as transfer prices.
2.
Compute lowest and highest acceptable transfer price, range of acceptable transfer prices, and should company transfer carried out or reject if conditions are applied.
Introduction: Transfer prices means the price charged on the product or service provided by on department of the company to another department of the company. Divisions are evaluated on the profit basis, or residual income price must be fixed for the transfer. Prices charged in these situations are referred as transfer prices.
3.
Compute lowest and highest acceptable transfer price, range of acceptable transfer prices, and should company transfer carried out or reject if conditions are applied.
Introduction: Transfer prices means the price charged on the product or service provided by on department of the company to another department of the company. Divisions are evaluated on the profit basis, or residual income price must be fixed for the transfer. Prices charged in these situations are referred as transfer prices.
4.
Compute the lowest acceptable transfer price from A division’s perspective if conditions are applied.
Introduction: Transfer prices means the price charged on the product or service provided by on department of the company to another department of the company. Divisions are evaluated on the profit basis, or residual income price must be fixed for the transfer. Prices charged in these situations are referred as transfer prices.
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- Question 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_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 effects.3. If the two divisions of American Motors were to negotiate a…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
- Division J makes a product, R, which it sells externally into a perfectly competitive market for £57; this represents a 90% mark-up on standard variable cost. It also transfers product R to Division K. If total external demand for product R exceeds the capacity of Division J, what is the optimal transfer price between divisions for a unit of product R? A) £54.50 B) £55.50 C) £56.72 D) £57.00arrow_forwardNUBD's X Division is currently purchasing a part from an outside supplier. The company's Y Division, which has excess capacity, makes and sells this part for external customers at a variable cost of P22 and a selling price of P34. If Y begins sales to X, it (1) will use the general transfer-pricing rule and (2) will be able to reduce variable cost on internal transfers by P2. If sales to outsiders will not be affected, Y would establish a transfer price of:arrow_forwardChapter: Traditional performance measurement syatem & Transfer Price (Managerial Accounting) Q) 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 itcould sell all its components to outside buyers at $680 per unit in a perfectly competitive market.Required:a) Determine a transfer price using the general rule.b) How would the transfer price change if the assembly division had no spare capacity? c) What transfer price would you recommend if there was no outside market for the transferred component and the assembly division had spare capacity? d) Explain 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? (200 words)arrow_forward
- 1. Determine the minimum transfer price that Cutting Division would accept. 2. Determine the maximum transfer price that the Assembly Division would pay. 3. If Cutting Division will accept the offer of Assembly Division, how much is the change in its operating income ? 4. If Cutting Division will make a counter offer of P45.25 per part, how much is the change in the operating income of Assembly Division assuming that its external supplier could not supply its needed quantity?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_forwardDecision on Transfer Pricing Materials used by the Instrument Division of T_Kong Industries are currently purchased from outside suppliers at a cost of $316 per unit. However, the same materials are available from the Components Division. The Components Division has unused capacity and can produce the materials needed by the Instrument Division at a variable cost of $262 per unit. a. If a transfer price of $288 per unit is established and 42,400 units of materials are transferred, with no reduction in the Components Division’s current sales, how much would T_Kong Industries’ total income from operations increase? b. How much would the Instrument Division’s income from operations increase? c. How much would the Components Division’s income from operations increase?arrow_forward
- Transfer Pricing: Various Computations Corning Company has a decentralized organization with a divisional structure. Two of these divisions are the Appliance Division and the Manufactured Housing Division. Each divisional manager is evaluated on the basis of ROI. The Appliance Division produces a small automatic dishwasher that the Manufactured Housing Division can use in one of its models. Appliance can produce up to 20,000 of these dishwashers per year. The variable costs of manufacturing the dishwashers are $98. The Manufactured Housing Division inserts the dishwasher into the model house and then sells the manufactured house to outside customers for $73,000 each. The division's capacity is 4,000 units. The variable costs of the manufactured house (in addition to the cost of the dishwasher itself) are $42,600.arrow_forwardTransfer Pricing: Various Computations Corning Company has a decentralized organization with a divisional structure. Two of these divisions are the Appliance Division and the Manufactured Housing Division. Each divisional manager is evaluated on the basis of ROI. The Appliance Division produces a small automatic dishwasher that the Manufactured Housing Division can use in one of its models. Appliance can produce up to 21,000 of these dishwashers per year. The variable costs of manufacturing the dishwashers are $102. The Manufactured Housing Division inserts the dishwasher into the model house and then sells the manufactured house to outside customers for $73,500 each. The division's capacity is 3,990 units. The variable costs of the manufactured house (in addition to the cost of the dishwasher itself) are $46,200. Required: Assume each part is independent, unless otherwise indicated. 1. Assume that all of the dishwashers produced can be sold to external customers for $314 each. The…arrow_forwardTransfer Pricing: Various Computations Corning Company has a decentralized organization with a divisional structure. Two of these divisions are the Appliance Division and the Manufactured Housing Division. Each divisional manager is evaluated on the basis of ROI. The Appliance Division produces a small automatic dishwasher that the Manufactured Housing Division can use in one of its models. Appliance can produce up to 26,000 of these dishwashers per year. The variable costs of manufacturing the dishwashers are $102. The Manufactured Housing Division inserts the dishwasher into the model house and then sells the manufactured house to outside customers for $72,500 each. The division's capacity is 5,460 units. The variable costs of the manufactured house (in addition to the cost of the dishwasher itself) are $43,900. Required: 3. Assume that the Appliance Division is operating at 75 percent capacity. The Manufactured Housing Division is currently buying 5,460 dishwashers from an outside…arrow_forward
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