# Decision on transfer pricing Materials used by the Instrument Division of T_Kong Industries are currently purchased from outside suppliers at a cost of $175 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$122 per unit. a. If a transfer price of $148 per unit is established and 50,000 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? BuyFind ### Accounting 27th Edition WARREN + 5 others Publisher: Cengage Learning, ISBN: 9781337272094 BuyFind ### Accounting 27th Edition WARREN + 5 others Publisher: Cengage Learning, ISBN: 9781337272094 #### Solutions Chapter Section Chapter 24, Problem 24.20EX Textbook Problem ## Decision on transfer pricing Materials used by the Instrument Division of T_Kong Industries are currently purchased from outside suppliers at a cost of$175 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 $122 per unit. a. If a transfer price of$148 per unit is established and 50,000 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?

Expert Solution

a.

To determine

Transfer price: The price charged for the goods and services transferred among the divisions is referred to as transfer price.

Approaches for setting transfer prices:

• Market price approach
• Negotiated price approach
• Cost price approach

To determine: The increase in Industries TK income from operations as a result of transfer pricing

### Explanation of Solution

Determine the increase in Industries TK’s income from operations as a result of transfer pricing.

Increase in Industries TK’s income from operations} = {(Market price–

Expert Solution

b.

To determine
The increase in I Division’s income from operations as a result of transfer pricing

Expert Solution

c.

To determine
The increase in C Division’s income from operations as a result of transfer pricing

### Want to see the full answer?

Check out a sample textbook solution.See solution

### Want to see this answer and more?

Bartleby provides explanations to thousands of textbook problems written by our experts, many with advanced degrees!

See solution

Find more solutions based on key concepts
Show solutions
In what ways is economics a science?

Principles of Macroeconomics (MindTap Course List)

What is an assets depreciable cost?

College Accounting, Chapters 1-27

What are the levels of data hierarchy?

Accounting Information Systems

PORTFOLIO BETA A mutual fund manager has a 20 million portfolio with a beta of 1.5. The risk-free rate is 4.5%,...

Fundamentals of Financial Management, Concise Edition (with Thomson ONE - Business School Edition, 1 term (6 months) Printed Access Card) (MindTap Course List)

Contrast a win-win negotiator with a win-lose negotiator.