Comm Devices (CD) is a division of Worldwide Communications, Inc. CD produces pagers and other personal communication devices. These devices are sold to other Worldwide divisions, as well as to other communication companies. CD was recently approached by the manager of the Personal Communications Division regarding a request to make a special pager designed to receive signals from anywhere in the world. The Personal Communications Division has requested that CD produce 12,000 units of this special pager. The following facts are available regarding the Comm Devices Division.
Selling price of standard pager | $95 |
Variable cost of standard pager | $50 |
Additional variable cost of special pager | $30 |
Instructions
For each of the following independent situations, calculate the minimum transfer price, and discuss whether the internal transfer should take place or whether the Personal Communications Division should purchase the pager externally.
(a) The Personal Communications Division has offered to pay the CD Division $105 per pager. The CD Division has no available capacity. The CD Division would have to forgo sales of 10,000 pagers to existing customers in order to meet the request of the Personal Communications Division. (Note: The number of special pagers to be produced does not equal the number of existing pagers that would be forgone.)
(b) The Personal Communications Division has offered to pay the CD Division $150 per pager. The CD Division has no available capacity. The CD Division would have to forgo sales of 16,000 pagers to existing customers in order to meet the request of the Personal Communications Division. (Note: The number of special pagers to be produced does not equal the number of existing pagers that would be forgone.
(c) The Personal Communications Division has offered to pay the CD Division $100 per pager. The CD Division has available capacity.
(b) Minimum transfer price $140
Want to see the full answer?
Check out a sample textbook solutionChapter 8 Solutions
Managerial Accounting: Tools For Business Decision Making, Seventh Edition Wileyplus Card
- H-Robotic Incorporated (HRI), a world leader in the robotics industry, produces a line of industrial robots and peripheral equipment that performs many routine assembly-line tasks. However, increased competition, particularly from Japanese firms, has caused HRI's management to be concerned about the company's growth potential in the future. HRI's research and development department have been applying the industrial robot technology to develop a line of household robots. The household robot is designed to function as a maid, mainlyperforming such tasks as vacuuming floors and carpets. This effort has nowreached the stage where a decision on whether to go forward with production must be made. The engineering department has estimated that the firm would need a new manufacturing plant with the following construction schedule: The plant would require a 35-acre site, and HRI currently has an option to purchase a suitable tract of land for $2.5 million. The building construction would begin…arrow_forwardMonty Company manufactures automobile components for the worldwide market. The company has three large production facilities in Virginia, New Jersey, and California, which have been operating for many years. Brett Harker, vice president of production, believes it is time to upgrade operations by implementing computer-integrated manufacturing (CIM) at one of the plants. Brett has asked corporate controller Connie Carson to gather information about the costs and benefits of implementing CIM. Carson has gathered the following data: Initial equipment cost $ 7,400,000 Working capital required at start-up $ 600,000 Salvage value of existing equipment $ 107,400 Annual operating cost savings $ 1,202,880 Salvage value of new equipment at end of its useful life $ 286,400 Working capital released at end of its useful life 2$ 600,000 Useful life of equipment 10 years Monty Company uses a 12% discount rate.arrow_forwardRecently, Mewah Designs expanded its market by becoming an original equipment supplier toJee Wrangler. Mewah Designs produces factory upgraded speakers specifically for JeeWrangler. The Kicker components and speaker cabinets are outsourced with assemblyremaining in-house. Mewah Designs assemble the product by placing the speakers and othercomponents in cabinets that define an audio package upgrade and that can be placed into theJee Wrangler, producing the desired factory-installed appearance. Speaker cabinets andassociated Kicker components are added at the beginning of the assembly process.Assume that Mewah Designs uses the weighted-average method to cost out the audio package.The following are cost and production data for the assembly process for April: Production:Units in process, April 1, 60% complete 60,000Units completed and transferred out 150,000Units in process, April 30, 20% complete 30,000Costs:WIP, April 1:Cabinets RM 1,200,000Kicker components RM 12,600,000Conversion costs…arrow_forward
- The process-control division expects to sell 1,250 process-control units this year. From the viewpoint of Sierra Inc. as a whole, should 1,250 Xcel-chips be transferred to the process-control division to replace circuit boards? Show your computations.arrow_forwardQualSupport Corporation manufactures seats for automobiles, vans, trucks, and various recreational vehicles. The company has a number of plants around the world, including the Denver Cover Plant, which makes seat covers. Ted Vosilo is the plant manager of the Denver Cover Plant but also serves as the regional production manager for the company. His budget as the regional manager is charged to the Denver Cover Plant. Vosilo has just heard that QualSupport has received a bid from an outside vendor to supply the equivalent of the entire annual output of the Denver Cover Plant for $35 million. Vosilo was astonished at the low outside bid because the budget for the Denver Cover Plant’s operating costs for the upcoming year was set at $52 million. If this bid is accepted, the Denver Cover Plant will be closed down. The budget for Denver Cover’s operating costs for the coming year is presented below. Denver Cover PlantAnnual Budget for Operating Costs Materials $ 14,000,000…arrow_forwardChilton Peripherals manufactures printers, scanners, and other computer peripheral equipment. In the past, thecompany purchased equipment used in manufacturing from an outside vendor. In March 2018, Chilton decidedto design and build equipment to replace some obsolete equipment. A section of the manufacturing plant was setaside to develop and produce the equipment. Additional personnel were hired for the project. The equipment wascompleted and ready for use in September.Required:1. In general, what costs should be capitalized for a self-constructed asset?2. Discuss two alternatives for the inclusion of overhead costs in the cost of the equipment constructed by Chilton. Which alternative is generally accepted for financial reporting purposes?3. Under what circumstance(s) would interest be included in the cost of the equipment?arrow_forward
- ABC Enterprises is a multi-divisional firm that makes and sells personal protective equipment to health-care providers and other businesses. Division A manufactures large, state-of-the-art HEPA (high-efficiency particulate air) filters that trap harmful particles. Division A sells HEPA filters to external buyers at the price of $73 per unit. Division A also provides these HEPA filters to Division B; Division B installs these filters in medical-grade Air Purifier Units and sells these Air Purifier Units to external buyers at the price of $906 per unit. Divisions A and B use normal absorption costing, with overhead (all fixed) allocated to units using a sophisticated activity-based costing system. Inventoriable unit costs for the two divisions are: Division A’s HEPA Filters: absorption cost per unit for external sales of $44 (includes $7 fixed overhead allocation); absorption cost per unit for internal transfers of $33 (includes $7.80 fixed overhead allocation). Division B’s Air Purifier…arrow_forwardPearson Company manufactures a variety of electronic printed circuit boards (PCBs) that go into cellular phones. The company has just received an offer from an outside supplier to provide the electrical soldering for Pearson’s Motorola product line (Z-7 PCB, slimline). The quoted price is $4.80 per unit. Pearson is interested in this offer, since its own soldering operation of the PCB is at its peak capacity. Outsourcing option. The company estimates that if the supplier’s offer were accepted, the direct labor and variable overhead costs of the Z-7 slimline would be reduced by 15% and the direct material cost would be reduced by 20%. In-house production option. Under the present operations, Pearson manufactures all of its own PCBs from start to finish. The Z-7 slimlines are sold through Motorola at $20 per unit. Fixed overhead charges to the Z-7 slimline total $20,000 each year. The further breakdown of producing one unit is as follows: The manufacturing overhead of $4.00 per unit…arrow_forwardualSupport Corporation manufactures seats for automobiles, vans, trucks, and various recreational vehicles. The company has a number of plants around the world, including the Denver Cover Plant, which makes seat covers. Ted Vosilo is the plant manager of the Denver Cover Plant but also serves as the regional production manager for the company. His budget as the regional manager is charged to the Denver Cover Plant. Vosilo has just heard that QualSupport has received a bid from an outside vendor to supply the equivalent of the entire annual output of the Denver Cover Plant for $20.19 million. Vosilo was astonished at the low outside bid because the budget for the Denver Cover Plant’s operating costs for the upcoming year was set at $23.49 million. If this bid is accepted, the Denver Cover Plant will be closed down. The budget for Denver Cover’s operating costs for the coming year is presented below. Denver Cover Plant Annual Budget for Operating Costs Materials $…arrow_forward
- M4 Engineering has two divisions, the Fabrication Division and the Airplane Division. The Airplane Division may purchase engine mounting clamps from the Fabrication Division or from outside suppliers. The Fabrication Division sells engine mounting clamps both internally and externally. The market price for is $5,000 per 100 mounting clamps. The following conversation took place between the controllers of the Fabrication Division and Airplane Division: • Airplane Division: I hear you are having problems selling mounting clamps out of your division. Maybe I can help. • Fabrication Division: You've got that right. We're producing and selling at about 90% of our capacity to outsiders. Last year we were selling 100% of capacity. Would it be possible for your division to pick up some of our excess capacity? After all, we are part of the same company. • Airplane Division: What kind of price could you give me? • Fabrication Division: Well, you know as well as I that we are under strict profit…arrow_forwardSwifty Company makes various electronic products. The company is divided into a number of autonomous divisions that can either sell to internal units or sell externally. All divisions are located in buildings on the same piece of property. The Board Division has offered the Chip Division $22 per unit to supply it with chips for 45,000 boards. It has been purchasing these chips for $23 per unit from outside suppliers. The Chip Division receives $25.40 per unit for sales made to outside customers on this type of chip. The variable cost of chips sold externally by the Chip Division is $14.40. It estimates that it will save $6.40 per chip of selling expenses on units sold internally to the Board Division. The Chip Division has no excess capacity. (a) Calculate the minimum transfer price that the Chip Division should accept. (Round answers to 0 decimal places. e.g. 10.) Minimum transfer price $ Should Chip Division accept the offer? 19 (b) Suppose that the Chip Division decides to reject…arrow_forwardBostonian Inc. has a number of divisions, including the Delta Division and the Listen Now Division. The Listen Now Division owns and operates a line of MP3 players. Each year, the Listen Now Division purchases component AZ in order to manufacture the MP3 players. Currently, it purchases this component from an outside supplier for $6.50 per component. The manager of the Delta Division has approached the manager of the Listen Now Division about selling component AZ to the Listen Now Division. The full product cost of component AZ is $3.10. The Delta Division can sell all of the component AZs it makes to outside companies for $6.50. The Listen Now Division needs 18,000 component AZs per year; the Delta Division can make up to 60,000 components per year. Required: A. Which division sets the maximum transfer price? Which division sets the minimum transfer price? Maximum Minimum B. Suppose the company policy is that all transfer take place at full cost. What is the transfer…arrow_forward
- AccountingAccountingISBN:9781337272094Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.Publisher:Cengage Learning,Accounting Information SystemsAccountingISBN:9781337619202Author:Hall, James A.Publisher:Cengage Learning,
- Horngren's Cost Accounting: A Managerial Emphasis...AccountingISBN:9780134475585Author:Srikant M. Datar, Madhav V. RajanPublisher:PEARSONIntermediate AccountingAccountingISBN:9781259722660Author:J. David Spiceland, Mark W. Nelson, Wayne M ThomasPublisher:McGraw-Hill EducationFinancial and Managerial AccountingAccountingISBN:9781259726705Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting PrinciplesPublisher:McGraw-Hill Education