Quinn Inc. has a number of divisions. One division, Style, makes zippers that ar
ID: 2636964 • Letter: Q
Question
Quinn Inc. has a number of divisions. One division, Style, makes zippers that are used in the manufacture of boots. Another division, LeatherStuff, makes boots that use the zippers and needs 90,000 zippers per year. Style incurs the following costs for one zipper:
$0.23
$0.20
$0.95
$1.32
$2.70
Quinn has capacity to make 950,000 zippers per year, but due to a soft market, only plans to produce and sell 620,000 zippers next year. LeatherStuff currently buys zippers from an outside supplier for $3.50 each (the same price that Style receives).
Refer to Figure 12-4. Assume that Style and LeatherStuff have agreed on a transfer price of $3.25. What is the total benefit for Quinn, Inc.?
Assume that Style and LeatherStuff have agreed on a transfer price of $3.25. What are the total cost savings for LeatherStuff?
Assume that Quinn allows negotiated transfer pricing. What is the ceiling of the bargaining range and which division sets it?
Assume that Quinn allows negotiated transfer pricing. What is the floor of the bargaining range and which division sets it?
Direct materials$0.23
Direct labor$0.20
Variable overhead$0.95
Fixed overhead$1.32
Total$2.70
Explanation / Answer
if they agree to transfer at $3.25, then the total profit for Quinn is
0.25X 620,000= $15,000
total cost saving to Leather stuff is as follows:
$15,000
if ndgotianions happens, the marketing and finance departments together decide at what price the product should be sell to the parties