Question

Tulip Company is made up of two divisions: A and B. Division A produces a widget...

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 $0.95; full cost is $1.40. Comparable widgets sell on the open market for $1.90 each. Division A can produce up to 1.80 million widgets per year but is currently operating at only 50 percent capacity. Division B expects to use 90,000 widgets in the current year.

Required:
1. Determine the minimum and maximum transfer prices. (Enter your answers to 2 decimal places.)

           

2. Calculate Tulip Company’s total benefit of having the widgets transferred between these divisions.

         

3. If the transfer price is set at $.95 per unit, determine how much profit Division A will make on the transfer. Determine how much Division B will save by not purchasing the widgets on the open market. (Round your answers to 2 decimal places.)

         

4. If the transfer price is set at $1.90 per unit, determine how much profit Division A will make on the transfer. Determine how much Division B will save by not purchasing the widgets on the open market. (Round your answers to 2 decimal places.)

        

5. What transfer price would you recommend to split the difference? (Round your answer to 3 decimal places.)

    


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