COST ACCOUNTING W18 CUSTOM W/ACCESS
18th Edition
ISBN: 9781323831427
Author: Horngren
Publisher: PEARSON
expand_more
expand_more
format_list_bulleted
Question
Chapter 22, Problem 22.26P
A.
To determine
Transfer Price:
This is a price which is charged by one sub-unit of an organization to another sub-unit for supplying a product or service in the same organization.
To determine: The minimum transfer price at which the SD manager would be willing to sell the screens to the AD.
B.
To determine
The maximum transfer price at which the AD manager would be willing to purchase the screens from the SD.
C. a.
To determine
The minimum transfer price at which the SD manager would be willing to sell the screens to the AD.
C. b.
To determine
From the viewpoint of the management of the company, the amount of the SD output to be transferred to AD.
C. c.
To determine
The resulting transfer price if the managers split the difference and whether this price achieves the desired outcome.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solutionStudents have asked these similar questions
General guideline, transfer pricing. The Slate Company manufactures and sells television sets. Its assembly division (AD) buys television screens from the screen division (SD) and assembles the TV sets. The SD, which is operating at capacity,incurs an incremental manufacturing cost of $65 per screen. The SD can sell all its output to the outside market at a priceof $100 per screen, after incurring a variable marketing and distribution cost of $8 per screen. If the AD purchases screens from outside suppliers at a price of $100 per screen, it will incur a variable purchasing cost of $7 per screen. Slate’s division managers can act autonomously to maximize their own division’s operating income.1. What is the minimum transfer price at which the SD manager would be willing to sell screens to the AD?2. What is the maximum transfer price at which the AD manager would be willing to purchase screens from the SD?3. Now suppose that the SD can sell only 70% of its output capacity of 20,000…
The Slate Company manufactures and sells television sets. Its assembly division (AD) buys television screens from the screen division (SD) and assembles the TV sets. The SD, which is operating at capacity, incurs an incremental manufacturing cost of $65 per screen. The SD can sell all its output to the outside market at a price of $100 per screen, after incurring a variable marketing and distribution cost of $8 per screen. If the AD purchases screens from outside suppliers at a price of $100 per screen, it will incur a variable purchasing cost of $7 per screen. Slate’s division managers can act autonomously to maximize their own division’s operating income.
Q. Now suppose that the SD can sell only 70% of its output capacity of 20,000 screens per month on the open market. Capacity cannot be reduced in the short run. The AD can assemble and sell more than 20,000 TV sets per month.
a. If Slate mandates the SD and AD managers to “split the difference” on the minimum and maximum transfer…
The Slate Company manufactures and sells television sets. Its assembly division (AD) buys television screens from the screen division (SD) and assembles the TV sets. The SD, which is operating at capacity, incurs an incremental manufacturing cost of $65 per screen. The SD can sell all its output to the outside market at a price of $100 per screen, after incurring a variable marketing and distribution cost of $8 per screen. If the AD purchases screens from outside suppliers at a price of $100 per screen, it will incur a variable purchasing cost of $7 per screen. Slate’s division managers can act autonomously to maximize their own division’s operating income.
Q. What is the maximum transfer price at which the AD manager would be willing to purchase screens from the SD?
Chapter 22 Solutions
COST ACCOUNTING W18 CUSTOM W/ACCESS
Ch. 22 - Prob. 22.1QCh. 22 - Describe three criteria you would use to evaluate...Ch. 22 - What is the relationship among motivation, goal...Ch. 22 - Name three benefits and two costs of...Ch. 22 - Organizations typically adopt a consistent...Ch. 22 - Transfer pricing is confined to profit centers. Do...Ch. 22 - What are the three methods for determining...Ch. 22 - What properties should transfer-pricing systems...Ch. 22 - All transfer-pricing methods give the same...Ch. 22 - Prob. 22.10Q
Ch. 22 - Prob. 22.11QCh. 22 - Prob. 22.12QCh. 22 - Prob. 22.13QCh. 22 - Under the general guideline for transfer pricing,...Ch. 22 - How should managers consider income tax issues...Ch. 22 - Evaluating management control systems, balanced...Ch. 22 - Cost centers, profit centers, decentralization,...Ch. 22 - Prob. 22.18ECh. 22 - Prob. 22.19ECh. 22 - Multinational transfer pricing, effect of...Ch. 22 - Prob. 22.21ECh. 22 - Multinational transfer pricing, global tax...Ch. 22 - Prob. 22.23ECh. 22 - Prob. 22.24ECh. 22 - Transfer-pricing problem (continuation of 22-24)....Ch. 22 - Prob. 22.26PCh. 22 - Prob. 22.27PCh. 22 - Effect of alternative transfer-pricing methods on...Ch. 22 - Goal-congruence problems with cost-plus...Ch. 22 - Multinational transfer pricing, global tax...Ch. 22 - Transfer pricing, external market, goal...Ch. 22 - Prob. 22.32PCh. 22 - Transfer pricing, goal congruence, ethics. Cocoa...Ch. 22 - Prob. 22.34PCh. 22 - Transfer pricing, perfect and imperfect markets....Ch. 22 - Prob. 22.36PCh. 22 - Prob. 22.37P
Knowledge Booster
Similar questions
- Materials used by the Instrument Division of Ziegler Inc. are currently purchased from outside suppliers at a cost of 1,350 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 900 per unit. a. If a transfer price of 1,000 per unit is established and 75,000 units of materials are transferred, with no reduction in the Components Divisions current sales, how much would Ziegler Inc.s total operating income increase? b. How much would the Instrument Divisions operating income increase? c. How much would the Components Divisions operating income increase?arrow_forwardOat Treats manufactures various types of cereal bars featuring oats. Simmons Cereal Company has approached Oat Treats with a proposal to sell the company its top selling oat cereal bar at a price of $27,500 for 20,000 bars. The costs shown are associated with production of 20,000 oat bars currently. The manufacturing overhead consists of $3,000 of variable costs with the balance being allocated to fixed costs. Should Oat Treats make or buy the oat bars?arrow_forwardSalvador Manufacturing builds and sells snowboards, skis and poles. The sales price and variable cost for each follows: Their sales mix is reflected in the ratio 7:3:2. If annual fixed costs shared by the three products are $196,200, how many units of each product will need to be sold in order for Salvador to break even?arrow_forward
- Product Mix Decision, Single Constraint Sealing Company manufactures three types of DVD storage units. Each of the three types requires the use of a special machine that has a total operating capacity of 15,000 hours per year. Information on the three types of storage units is as follows: Sealings marketing director has assessed demand for the three types of storage units and believes that the firm can sell as many units as it can produce. Required: 1. How many of each type of unit should be produced and sold to maximize the companys contribution margin? What is the total contribution margin for your selection? 2. Now suppose that Sealing Company believes that it can sell no more than 12,000 of the deluxe model but up to 50,000 each of the basic and standard models at the selling prices estimated. What product mix would you recommend, and what would be the total contribution margin?arrow_forwardCape Cod Adventures makes foam noodles with sales of 3,000,000 units per year and retractable boat oars with sales of 50,000 pairs per year. What information would Cape Cod Adventures need in order to change from traditional to ABC costing? What are the limitations to activity-based costing?arrow_forwardThe Slate Company manufactures and sells television sets. Its assembly division (AD) buys television screens from the screen division (SD) and assembles the TV sets. The SD, which is operating at capacity, incurs an incremental manufacturing cost of $65 per screen. The SD can sell all its output to the outside market at a price of $100 per screen, after incurring a variable marketing and distribution cost of $8 per screen. If the AD purchases screens from outside suppliers at a price of $100 per screen, it will incur a variable purchasing cost of $7 per screen. Slate’s division managers can act autonomously to maximize their own division’s operating income. Q. Now suppose that the SD can sell only 70% of its output capacity of 20,000 screens per month on the open market. Capacity cannot be reduced in the short run. The AD can assemble and sell more than 20,000 TV sets per month. a. What is the minimum transfer price at which the SD manager would be willing to sell screens to the AD?arrow_forward
- The Slate Company manufactures and sells television sets. Its assembly division (AD) buys television screens from the screen division (SD) and assembles the TV sets. The SD, which is operating at capacity, incurs an incremental manufacturing cost of $65 per screen. The SD can sell all its output to the outside market at a price of $100 per screen, after incurring a variable marketing and distribution cost of $8 per screen. If the AD purchases screens from outside suppliers at a price of $100 per screen, it will incur a variable purchasing cost of $7 per screen. Slate’s division managers can act autonomously to maximize their own division’s operating income. Q. What is the minimum transfer price at which the SD manager would be willing to sell screens to the AD?arrow_forwardThe Slate Company manufactures and sells television sets. Its assembly division (AD) buys television screens from the screen division (SD) and assembles the TV sets. The SD, which is operating at capacity, incurs an incremental manufacturing cost of $65 per screen. The SD can sell all its output to the outside market at a price of $100 per screen, after incurring a variable marketing and distribution cost of $8 per screen. If the AD purchases screens from outside suppliers at a price of $100 per screen, it will incur a variable purchasing cost of $7 per screen. Slate’s division managers can act autonomously to maximize their own division’s operating income. Q. Now suppose that the SD can sell only 70% of its output capacity of 20,000 screens per month on the open market. Capacity cannot be reduced in the short run. The AD can assemble and sell more than 20,000 TV sets per month. a. From the point of view of Slate’s management, how much of the SD output should be transferred to the AD?arrow_forwardQuest Motors, Inc., operates as a decentralized multidivision company. The Vivo division of Quest Motors purchases most of its airbags from the airbag division. The airbag division’s incremental cost for manufacturing the airbags is $90 per unit. The airbag division is currently working at 80% of capacity. The current market price of the airbags is $125 per unit. Q. Instead of allowing negotiation, suppose that Quest specifies a hybrid transfer price that “splits the difference” between the minimum and maximum prices from the divisions’ standpoint. What would be the resulting transfer price for airbags?arrow_forward
- The Windshield division of Fast Car Co. makes windshields for use in Fast Car’s Assembly division. The Windshield division incurs variable costs of $200 per windshield and has capacity to make 500,000 windshields per year. The market price is $450 per windshield. The Windshield division incurs total fixed costs of $3,000,000 per year. If the Windshield division has excess capacity, what is the range of possible transfer prices that could be used on transfers between the Windshield and Assembly divisions?arrow_forwardSony manufactures and sells television sets. Its assembly division (AD) buys television screens from the screen division (SD) and assembles the TV sets. The SD, which is operating at capacity, incurs an incremental manufacturing cost of $60 per screen. The SD can sell all its output to the outside market at a price of $110 per screen, after incurring a variable marketing and distribution cost of $10 per screen. If the AD purchases screens from outside suppliers at a price of $110 per screen, it will incur a variable purchasing cost of $8 per screen. Sony’s division managers can act autonomously to maximize their own division’s operating income. Required: What is the minimum transfer price at which the SD manager would be willing to sell screens to the AD? What is the maximum transfer price at which the AD manager would be willing to purchase screens from the SD? Now suppose that the SD can sell only 80% of its output capacity of 10,000 screens per month on the open market.…arrow_forwardHoliday Corporation has two divisions, Quail and Marlin. Quail produces a widget that Marlin could use in its production. Quail's variable costs are $4.30 per widget while the full cost is $7.30. Widgets sell on the open market for $12.60 each. If Quail has excess capacity, what would be the minimum transfer price if Marlin currently is purchasing 115,000 units on the open market? Multiple Choice $5.30 $4.30 $12.60 $7.30arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- Managerial Accounting: The Cornerstone of Busines...AccountingISBN:9781337115773Author:Maryanne M. Mowen, Don R. Hansen, Dan L. HeitgerPublisher:Cengage LearningManagerial AccountingAccountingISBN:9781337912020Author:Carl Warren, Ph.d. Cma William B. TaylerPublisher:South-Western College PubCornerstones of Cost Management (Cornerstones Ser...AccountingISBN:9781305970663Author:Don R. Hansen, Maryanne M. MowenPublisher:Cengage Learning
- Excel Applications for Accounting PrinciplesAccountingISBN:9781111581565Author:Gaylord N. SmithPublisher:Cengage LearningPrinciples of Accounting Volume 2AccountingISBN:9781947172609Author:OpenStaxPublisher:OpenStax College
Managerial Accounting: The Cornerstone of Busines...
Accounting
ISBN:9781337115773
Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:Cengage Learning
Managerial Accounting
Accounting
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:South-Western College Pub
Cornerstones of Cost Management (Cornerstones Ser...
Accounting
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Cengage Learning
Excel Applications for Accounting Principles
Accounting
ISBN:9781111581565
Author:Gaylord N. Smith
Publisher:Cengage Learning
Principles of Accounting Volume 2
Accounting
ISBN:9781947172609
Author:OpenStax
Publisher:OpenStax College