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Transfer pricing Exoplex Industries Inc. is a diversified aerospace company, including two operating divisions, Semiconductors and Navigational Systems divisions. Condensed divisional income statements, which involve no intracompany transfers and include a breakdown of expenses into variable and fixed components, are as follows: The Semiconductors Division is presently producing 2,240 units out of a total capacity of 2,820 units. Materials used in producing the Navigational Systems Division’s product are currently purchased from outside suppliers at a price of $452 per unit. The Semiconductors Division is able to produce the components used by the Navigational Systems Division. Except for the possible transfer of materials between divisions, no changes are expected in sales and expenses. Instructions 1. Would the market price of $432 per unit be an appropriate transfer price for Exoplex Industries Inc.? Explain. 2. If the Navigational Systems Division purchased 580 units from the Semiconductors Division, rather than externally, at a negotiated transfer price of $310 per unit, how much would the income from operations of each division and total company income from operations increase? 3. Prepare condensed divisional income statements for Exoplex Industries Inc. based on the data in part (2). 4. If a transfer price of $340 per unit was negotiated, how much would live income from operations of each division and total company income from operations increase? 5. a. What is the range of possible negotiated transfer prices that would be acceptable for Exoplex Industries Inc.? b. Assuming that the managers of the two divisions cannot agree on a transfer price, what price would you suggest as the transfer price?

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 24.6BPR
Textbook Problem

Transfer pricing

 Exoplex Industries Inc. is a diversified aerospace company, including two operating divisions, Semiconductors and Navigational Systems divisions. Condensed divisional income statements, which involve no intracompany transfers and include a breakdown of expenses into variable and fixed components, are as follows:

 The Semiconductors Division is presently producing 2,240 units out of a total capacity of 2,820 units. Materials used in producing the Navigational Systems Division’s product are currently purchased from outside suppliers at a price of $452 per unit. The Semiconductors Division is able to produce the components used by the Navigational Systems Division. Except for the possible transfer of materials between divisions, no changes are expected in sales and expenses.

 Instructions

  1. 1. Would the market price of $432 per unit be an appropriate transfer price for Exoplex Industries Inc.? Explain.
  2. 2. If the Navigational Systems Division purchased 580 units from the Semiconductors Division, rather than externally, at a negotiated transfer price of $310 per unit, how much would the income from operations of each division and total company income from operations increase?
  3. 3. Prepare condensed divisional income statements for Exoplex Industries Inc. based on the data in part (2).
  4. 4. If a transfer price of $340 per unit was negotiated, how much would live income from operations of each division and total company income from operations increase?
  5. 5. a. What is the range of possible negotiated transfer prices that would be acceptable for Exoplex Industries Inc.?

  b. Assuming that the managers of the two divisions cannot agree on a transfer price, what price would you suggest as the transfer price?

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Chapter 24 Solutions

Accounting
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Ch. 24 - Budgetary performance for cost center Caroline...Ch. 24 - Budgetary performance for cost center Conley...Ch. 24 - Service department charges The centralized...Ch. 24 - Service department charges The centralized...Ch. 24 - Income from operations for profit center Using the...Ch. 24 - Income from operations for profit center Using the...Ch. 24 - Profit margin, investment turnover, and ROI Cash...Ch. 24 - Profit margin, investment turnover and ROI Briggs...Ch. 24 - Residual income The Consumer Division of Galena...Ch. 24 - Residual income The Commercial Division of Herring...Ch. 24 - Transfer pricing The materials used by the North...Ch. 24 - Transfer pricing The materials used by the...Ch. 24 - Budget performance reports for cost centers...Ch. 24 - Divisional income statements The following data...Ch. 24 - Service department charges and activity bases For...Ch. 24 - Activity bases for service department charges For...Ch. 24 - Service department charges In divisional income...Ch. 24 - Service department charges and activity bases...Ch. 24 - Divisional income statements with service...Ch. 24 - Corrections to service department charges for a...Ch. 24 - Profit center responsibility reporting Glades...Ch. 24 - Return on investment The income from operations...Ch. 24 - Residual income Based on the data in Exercise...Ch. 24 - Determining missing items in return computation...Ch. 24 - Profit margin, investment turnover, and return on...Ch. 24 - Return on investment The Walt Disney Company has...Ch. 24 - Determining missing items in return and residual...Ch. 24 - Determining missing items from computations Data...Ch. 24 - Return on investment, residual income for a...Ch. 24 - Balanced scorecard for a service company American...Ch. 24 - Building a balanced scorecard Hit-n-Kun Inc. owns...Ch. 24 - Decision on transfer pricing Materials used by the...Ch. 24 - Decision on transfer pricing Based on T_Kong...Ch. 24 - Budget performance report for a cost center...Ch. 24 - Profit center responsibility reporting for a...Ch. 24 - Divisional income statements and return on...Ch. 24 - Effect of proposals on divisional performance A...Ch. 24 - Divisional performance analysis and evaluation The...Ch. 24 - Transfer pricing Garcon Inc. manufactures...Ch. 24 - Budget performance report for a cost center The...Ch. 24 - Profit center responsibility reporting for a...Ch. 24 - Divisional income statements and return on...Ch. 24 - Effect of proposals on divisional performance A...Ch. 24 - Divisional performance analysis and evaluation The...Ch. 24 - Transfer pricing Exoplex Industries Inc. is a...Ch. 24 - Ethics in Action Sembotix Company has several...Ch. 24 - Communication The Norsk Division of Gridiron...Ch. 24 - Service department charges The Customer Service...Ch. 24 - Evaluating divisional performance The three...Ch. 24 - Evaluating division performance Last Resort...

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