Transfer Pricing: This refers to a process of pricing in which one sub-unit of an organization charges a price to another sub-unit for supplying a product or service to the sub-unit of the same organization. To determine: Whether transfers should be made in division B if there is no unused capacity in division A and whether the market price is the correct transfer price.

Question

Pertinent transfer price, perfect and imperfect markets. Mountaineer, Inc., has two divisions, A and B, that manufacture expensive bicycles. Division A produces the bicycle frame, and division B assembles the rest of the bicycle onto the frame. There is a market for both the subassembly and the nal product. Each division has been designated as a prot center. The transfer price for the subassembly has been set at the long-run average market price. The following data are available for each division:

Answer 1

Question

Chapter 22, Problem 22.27P

A.

To determine

Transfer Pricing:

This refers to a process of pricing in which one sub-unit of an organization charges a price to another sub-unit for supplying a product or service to the sub-unit of the same organization.

To determine: Whether transfers should be made in division B if there is no unused capacity in division A and whether the market price is the correct transfer price.

B.

To determine

Whether the 800 units should be transferred to division A and at what transfer price.

C.

To determine

The contribution to the company as a whole if the transfer were made and as a manager whether buying can be done at $110.

D.

To determine

The transfer price that would produce the same operating income for division A for the two options (a) cutting the external price to $156, with the certainty that the sale will rise to 2,000 units and (b) maintaining the external price of $160 for the 1,200 units and transferring the 800 units to division B at a price that would produce the same operating income.

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Pertinent transfer price, perfect and imperfect markets. Mountaineer, Inc., has two divisions, A and B, that manufacture expensive bicycles. Division A produces the bicycle frame, and division B assembles the rest of the bicycle onto the frame. There is a market for both the subassembly and the nal product. Each division has been designated as a prot center. The transfer price for the subassembly has been set at the long-run average market price. The following data are available for each division:

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. 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 transferredcomponent and the assembly division had spare capacity? d) Explain how negotiation between the supplying and buying units may be used to set transferprices. How does this relate to the general transfer pricing rule?

hello, please give more emphasis on points a,b,c, and d Spark Ltd has two divisions, assembly and electrical. The assembly division transfers partiallycompleted components to the electrical division at a predetermined transfer price. The assemblydivision’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 transferredcomponent and the assembly division had spare capacity? d) Explain how negotiation between the supplying and buying units may be used to set transferprices. How does this relate to the general transfer pricing rule?

Answer 2

Question

Chapter 22, Problem 22.27P

A.

To determine

Transfer Pricing:

This refers to a process of pricing in which one sub-unit of an organization charges a price to another sub-unit for supplying a product or service to the sub-unit of the same organization.

To determine: Whether transfers should be made in division B if there is no unused capacity in division A and whether the market price is the correct transfer price.

B.

To determine

Whether the 800 units should be transferred to division A and at what transfer price.

C.

To determine

The contribution to the company as a whole if the transfer were made and as a manager whether buying can be done at $110.

D.

To determine

The transfer price that would produce the same operating income for division A for the two options (a) cutting the external price to $156, with the certainty that the sale will rise to 2,000 units and (b) maintaining the external price of $160 for the 1,200 units and transferring the 800 units to division B at a price that would produce the same operating income.

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Answer 3

Question

Chapter 22, Problem 22.27P

A.

To determine

Transfer Pricing:

This refers to a process of pricing in which one sub-unit of an organization charges a price to another sub-unit for supplying a product or service to the sub-unit of the same organization.

To determine: Whether transfers should be made in division B if there is no unused capacity in division A and whether the market price is the correct transfer price.

B.

To determine

Whether the 800 units should be transferred to division A and at what transfer price.

C.

To determine

The contribution to the company as a whole if the transfer were made and as a manager whether buying can be done at $110.

D.

To determine

The transfer price that would produce the same operating income for division A for the two options (a) cutting the external price to $156, with the certainty that the sale will rise to 2,000 units and (b) maintaining the external price of $160 for the 1,200 units and transferring the 800 units to division B at a price that would produce the same operating income.

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Answer 4

Question

Chapter 22, Problem 22.27P

A.

To determine

Transfer Pricing:

This refers to a process of pricing in which one sub-unit of an organization charges a price to another sub-unit for supplying a product or service to the sub-unit of the same organization.

To determine: Whether transfers should be made in division B if there is no unused capacity in division A and whether the market price is the correct transfer price.

B.

To determine

Whether the 800 units should be transferred to division A and at what transfer price.

C.

To determine

The contribution to the company as a whole if the transfer were made and as a manager whether buying can be done at $110.

D.

To determine

The transfer price that would produce the same operating income for division A for the two options (a) cutting the external price to $156, with the certainty that the sale will rise to 2,000 units and (b) maintaining the external price of $160 for the 1,200 units and transferring the 800 units to division B at a price that would produce the same operating income.

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Answer 5

Chapter 22, Problem 22.27P

A.

To determine

Transfer Pricing:

This refers to a process of pricing in which one sub-unit of an organization charges a price to another sub-unit for supplying a product or service to the sub-unit of the same organization.

To determine: Whether transfers should be made in division B if there is no unused capacity in division A and whether the market price is the correct transfer price.

B.

To determine

Whether the 800 units should be transferred to division A and at what transfer price.

C.

To determine

The contribution to the company as a whole if the transfer were made and as a manager whether buying can be done at $110.

D.

To determine

The transfer price that would produce the same operating income for division A for the two options (a) cutting the external price to $156, with the certainty that the sale will rise to 2,000 units and (b) maintaining the external price of $160 for the 1,200 units and transferring the 800 units to division B at a price that would produce the same operating income.

Answer 6

Chapter 22, Problem 22.27P

A.

To determine

Transfer Pricing:

This refers to a process of pricing in which one sub-unit of an organization charges a price to another sub-unit for supplying a product or service to the sub-unit of the same organization.

To determine: Whether transfers should be made in division B if there is no unused capacity in division A and whether the market price is the correct transfer price.

Answer 7

Chapter 22, Problem 22.27P

A.

To determine

Transfer Pricing:

This refers to a process of pricing in which one sub-unit of an organization charges a price to another sub-unit for supplying a product or service to the sub-unit of the same organization.

To determine: Whether transfers should be made in division B if there is no unused capacity in division A and whether the market price is the correct transfer price.

Answer 8

B.

To determine

Whether the 800 units should be transferred to division A and at what transfer price.

Answer 9

B.

To determine

Whether the 800 units should be transferred to division A and at what transfer price.

Answer 10

C.

To determine

The contribution to the company as a whole if the transfer were made and as a manager whether buying can be done at $110.

Answer 11

C.

To determine

The contribution to the company as a whole if the transfer were made and as a manager whether buying can be done at $110.

Answer 12

D.

To determine

The transfer price that would produce the same operating income for division A for the two options (a) cutting the external price to $156, with the certainty that the sale will rise to 2,000 units and (b) maintaining the external price of $160 for the 1,200 units and transferring the 800 units to division B at a price that would produce the same operating income.

Answer 13

D.

To determine

The transfer price that would produce the same operating income for division A for the two options (a) cutting the external price to $156, with the certainty that the sale will rise to 2,000 units and (b) maintaining the external price of $160 for the 1,200 units and transferring the 800 units to division B at a price that would produce the same operating income.

Answer 14

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Ch. 22 - Prob. 22.1Q Ch. 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

Solution Summary: The author explains how to calculate the contribution margin per unit of A and B.

Whether the 800 units should be transferred to division A and at what transfer price.

The contribution to the company as a whole if the transfer were made and as a manager whether buying can be done at $110.

Chapter 22 Solutions