Southwest Division offers its product to outside markets for $30. It incurs variable costs of $11 per unit and fixed costs of $37,50040,000 per month based on monthly production of 4,000 units. Northeast Division can acquire the product from an alternate supplier for $31 per unit or from Southwest Division for a transfer price of $30 plus $2 per unit in transportation costs. a. What are the costs and benefits of the alternatives available to Southwest Division and Northeast Division with respect to the transfer of Southwest Division's product? b. How would you answer change if Southwest Division had idle capacity sufficient to cover all of Northeast Division's needs?
Southwest Division offers its product to outside markets for $30. It incurs variable costs of $11 per unit and fixed costs of $37,50040,000 per month based on monthly production of 4,000 units. Northeast Division can acquire the product from an alternate supplier for $31 per unit or from Southwest Division for a transfer price of $30 plus $2 per unit in transportation costs. a. What are the costs and benefits of the alternatives available to Southwest Division and Northeast Division with respect to the transfer of Southwest Division's product? b. How would you answer change if Southwest Division had idle capacity sufficient to cover all of Northeast Division's needs?
Managerial Accounting
15th Edition
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:Carl Warren, Ph.d. Cma William B. Tayler
Chapter10: Evaluating Decentralized Operations
Section: Chapter Questions
Problem 17E: Materials used by the Instrument Division of Ziegler Inc. are currently purchased from outside...
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Southwest Division offers its product to outside markets for $30. It incurs variable costs of $11 per unit and fixed costs of $37,50040,000 per month based on monthly production of 4,000 units. Northeast Division can acquire the product from an alternate supplier for $31 per unit or from Southwest Division for a transfer price of $30 plus $2 per unit in transportation costs.
a. What are the costs and benefits of the alternatives available to Southwest Division and Northeast Division with respect to the transfer of Southwest Division's product?
b. How would you answer change if Southwest Division had idle capacity sufficient to cover all of Northeast Division's needs?
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