Survey of Accounting (Accounting I)
Solutions
Survey of Accounting (Accounting I)
Transfer pricing
Based on Kaufman Manufacturing's data in Exercise 14-17, assume that a transfer price of $22 has been established and that 150.000 units of materials are transferred, with no reduction in the Electronic Division's current sales.
a.How much would Kaufman Manufacturing's total operating income increase?
b.How much would the Appliance Division's operating income increase?
c.How much would the Electronic Division's operating income increase?
d.If the negotiated price approach is used, what would be the range of acceptable transfer prices and why?
(a)
Concept introduction:
In the Transfer Pricing, one unit is transferred from one department to another department. The price of transferred unit is decided through Company's polices. For example: - cost plus margin, fixed price, variable cost etc.
To compute:
The operating income increased of Kaufman Manufacturing if Department quoted price
Current purchased price from outside market is
Variable cost of electronic division is
Total increased in profit will be calculated as:
  
(b)
Concept introduction:
In the Transfer Pricing, one unit is transferred from one department to another department. The price of transferred unit is decided through Company's polices. For example: - cost plus margin, fixed price, variable cost etc.
To compute:
The operating income increased of appliance division.
(c)
Concept introduction:
In the transfer pricing, unit is transferred from one department to another department. The price of transferred unit is decided considering company polices. For example: - cost plus margin, fixed price, variable cost etc.
To compute:
The operating income increased of electronic division.
(d)
Concept introduction:
In the transfer pricing, unit is transferred from one department to another department. The price of transferred unit is decided consideringcompany polices. For example: - cost plus margin, fixed price, variable cost etc.
The range of acceptable transfer using the negotiated price approach and reasons for the same.
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