Question

ABC Unicycle makes unicycles and has two divisions. Each division is evaluated as a profit center.

The Wheel division produces unicycle wheels and can choose to sell wheels on either the open market at $30 per wheel, or sell them to the Assembly division.

The Assembly division assembles unicycles and can choose to either buy wheels from the Wheel division or purchase wheels on the open market.

Wheel Assembly

Cost per unit Division Division

Direct Labour $2.00 $6.00

Variable Materials 3.00 7.00

Variable Overhead Costs 4.00 8.00

Fixed Overhead Costs 5.00 9.00

Other information

Maximum capacity 2,000 3,000

Current production volume 1,800 2,600

The Assembly division would like to purchase an additional wheels from the Wheel division. Wheel division fixed costs would not be affected by additional sales to the Assembly Division.

**Required:**

- What are the minimum and maximum transfer prices between the Wheel Division and Assembly Division if the Wheel Division would like to buy one additional wheel.
- What are the minimum and maximum transfer prices between the Wheel Division and Assembly Division if the Wheel Division would like to buy 500 additional wheels.

Answer #1

The American Battery Company has two divisions, the Electrical
Division and the Assembly Division. Both divisions have the full
authority to make purchasing and selling decisions of their
division output to both outsiders and the other division. (A highly
decentralized structure) Each Division operates as a separate
profit center and is being evaluated on the basis of the divisionʹs
reported profit. The Electrical Division makes the battery cores
(inside components) of the battery, and the Assembly Division
places those cores...

21. Utah Corp. has two divisions: Parts and Assembly. The Parts
Division makes Part I2 for sale to outside customers:
Production capacity 24,000 units per month
Demand from outside customers 23,000 units per month
Per unit data for I2 for outside customers:
Selling price
$30.00
Variable production cost
$15.00
Variable selling cost
$0.5
Allocated fixed cost
$1.25
The Assembly Division has designed a new product that also uses
Part I2. For its new product, the Assembly Division would need
2,100...

Perfumes Ltd has two divisions: the Perfume Division and the
Bottle Division. The company is decentralized and each division is
evaluated as a profit centre. The Bottle Division produces bottles
that can be used by the Perfume Division. The Bottle Division's
variable manufacturing cost per unit is $3.00 and shipping costs
are $0.20 per unit. The Bottle Division's external sales price is
$4.00 per unit. No shipping costs are incurred on sales to the
Perfume Division. The Perfume Division can...

Perfumes Ltd has two divisions: the Perfume Division and the
Bottle Division. The company is decentralised and each division is
evaluated as a profit centre. The Bottle Division produces bottles
that can be used by the Perfume Division. The Bottle Division's
variable manufacturing cost per unit is $3.00 and shipping costs
are $0.20 per unit. The Bottle Division's external sales price is
$4.00 per unit. No shipping costs are incurred on sales to the
Perfume Division. The Perfume Division can...

The Van Division of MotoCar Corporation has offered to purchase
180,000 wheels from the Wheel Division for $76 per wheel. At a
normal volume of 500,000 wheels per year, production costs per
wheel for the Wheel Division are as follows:
Direct Matierals 26
Direct Labor 20
Variable Overhead 12
Fixed overhead 30
Total 88
The Wheel Division has been selling te 500,000 wheels per year
to oustside buyers at $106 each. Capacity is 700,000 wheels per
year. The van division...

Tulip Company is made up of two divisions: A and B. Division A
produces a widget that Division B uses in the production of its
product. Variable cost per widget is $1.35; full cost is $2.20.
Comparable widgets sell on the open market for $2.90 each. Division
A can produce up to 2.60 million widgets per year but is currently
operating at only 50 percent capacity. Division B expects to use
130,000 widgets in the current year.
Required:
1. Determine...

A firm has two divisions: a UP division and a DOWN division that
operate with autonomy. The UP division manufactures two different
products, one of which is transferred to the DOWN division within
the same company, and the other product is sold externally. The
external market price for the latter product is $120 per unit. The
transfer price for the internally transferred product is based on
its full cost in the UP division plus a markup of 20% over its...

ABC Division makes wood furniture. Most of their lumber is
purchased from XYZ Division. ABC Division is looking into a new
product, that will sell for $150, and wants to purchase the lumber
from XYZ. Planned production is 800 units, and would use otherwise
idle capacity at ABC. The external purchase price for the lumber
would be $60/chair. Corporate has a policy that internal transfers
are to be priced at variable cost plus allocated fixed costs.
Assume the following costs...

Internal or External Acquisitions: No Opportunity
Costs
The Van Division of MotoCar Corporation has offered to purchase
180,000 wheels from the Wheel Division for $38 per wheel. At a
normal volume of 500,000 wheels per year, production costs per
wheel for the Wheel Division are as follows:
Direct materials
$ 13
Direct labor
10
Variable overhead
6
Fixed overhead
15
Total
$ 44
The Wheel Division has been selling 500,000 wheels per year to
outside buyers at $53 each. Capacity...

Internal or External Acquisitions:
No Opportunity Costs The Van Division of MotoCar Corporation has
offered to purchase 180,000 wheels from the Wheel Division for $43
per wheel. At a normal volume of 500,000 wheels per year,
production costs per wheel for the Wheel Division are as
follows:
Direct materials
$14
Direct labor
10
Variable overhead
7
Fixed overhead
17
Total
$48
The Wheel Division has been selling 500,000 wheels per year to
outside buyers at $58 each. Capacity is 700,000...

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