Please show step by step instruction and explaination. Thank you! In each of the
ID: 2593309 • Letter: P
Question
Please show step by step instruction and explaination. Thank you!
In each of the cases below, assume that Division X has a product that can be sold either to outside customers or to Division Y of the same company for use in its production process. The managers of the divisions are evaluated based on their divisional profits Case DIvislon X: Capacity In units Number of units belng sold to outside customers Selling price per unit to outside customers Varlable costs per unit Fixed costs per unit (based on capacity) 101,000 101,000 50 29 101,000 86,000 29 12 Divislon Y 15,000 45 15,000 Number of units needed for production Purchase price per unit now belng paid to an outside supplier value Required information 5.00 points Required 1-a. Refer to the data in case A above. Assume in this case that $1 per unit in variable selling costs can be avoided on intracompany sales. Determine the transfer price of the selling division Transfer price 2 1-b. If the managers are free to negotiate and make decisions on their own, will a transfer take place? 0 O YesExplanation / Answer
Answer:
1
Transfer price=$49
Working notes for the answer
Transfer price> variable cost +(Total CM on lost sales/ number of unit transferred)
Transfer price> (29-1) +(50-29)*101,000/101,000
Transfer price> 28 +21
Transfer price> 49
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1-a
If the managers are free to negotiate and make decisions on their own, will a transfer take place?
Answer: NO
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2-a
in this case company has enough capacity to produce this product and satify demand of devision so there will not be any contribution lost and here the lowest selling price =variable cost of goods
Transfer price> 12
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2-b
If the managers are free to negotiate and make decisions on their own, will a transfer take place?
Answer: YES
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2-c
the lowest price would be
12
the Hghest price would be
24
the lowest price would be
12
the Hghest price would be
24