Question

In the Bombadier Company, Division A has a product that can be sold either to outside customers or to Division B. Information about these divisions is given below:

Case 1 Case 2

Division A:

Capacity in units 100,000 100,000

Number of units sold externally 100,000 60,000

Market selling price $90 $75

Variable costs per unit 73 58

Fixed costs per unit based on capacity 10 10

Division B:

Number of units needed for production 40,000 40,000

Purchase price per unit from external supplier $86 $74

The company uses the opportunity cost approach to transfer pricing. Which case should not be transferred internally?

a.Both should be transferred internally.

b.Neither should be transferred internally.

c.Case 2

d.Case 1

Panther Company had the following historical accounting data per unit:

Direct materials $60

Direct labor 30

Variable overhead 15

Fixed overhead 24

Variable selling expenses 45

Fixed selling expenses 9

The units are normally transferred internally from Division A to Division B. The units also may be sold externally for $210 per unit. The minimum profit level accepted by the company is a markup of 30 percent. There were no beginning or ending inventories.

If the negotiated price is used, Division A's transfer price should be a

a.maximum of $210.00.

b.maximum of $198.90.

c.minimum of $153.00.

d.minimum of $120.00.

Which of the following is a disadvantage of both residual income and ROI?

a.They both do not discourage myopic behavior.

b.They are both absolute measures of return.

c.They are both difficult to calculate.

d.All of these choices are disadvantages of both ROI and residual income.

Answer #1

Ans a Both should be tramsferred internally | |||||||||

The price needs to be negotiated | |||||||||

for Case 1 Maximum is $86 (paid to outside) and minimym is $73 (variabe cost for Division A), any price between it should be negotiated | |||||||||

For case 2 Min price is $58 and maximum is $74 , so price should be negotiated. | |||||||||

ans b | |||||||||

Option D maximum of $210 | |||||||||

As this is the market price so from the point of view of Division A $210 should be the maximum price. | |||||||||

ans c | |||||||||

a.They both do not discourage myopic behavior. | |||||||||

Both ROI and residual income do not discourage myopic behavior | |||||||||

If any doubt please comment |

In the Bombadier Company, Division A has a product that can be
sold either to outside customers or to Division B. Information
about these divisions is given below: Case 1 Case 2 Division A:
Capacity in units 100,000 100,000 Number of units sold externally
100,000 60,000 Market selling price $90 $75 Variable costs per unit
73 58 Fixed costs per unit based on capacity 10 10 Division B:
Number of units needed for production 40,000 40,000 Purchase price
per unit...

In each of the cases below, assume 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
A
B
Division X:
Capacity in units
97,000
90,000
Number of units being sold to outside customers
97,000
69,000
Selling price per unit to outside customers
$
52
$
33
Variable costs per...

In each of the cases below, assume 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
A
B
Division X:
Capacity in units
105,000
93,000
Number of units being sold to
outside customers
105,000
74,000
Selling price per unit to
outside customers
$
57
$
28
Variable costs per...

In each of the cases below, assume 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
A
B
Division X:
Capacity in units
91,000
98,000
Number of units being sold to outside customers
91,000
74,000
Selling price per unit to outside customers
$
57
$
31
Variable costs per...

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...

The Can Division of Crane Company manufactures and sells tin
cans externally for $0.70 per can. Its unit variable costs and unit
fixed costs are $0.24 and $0.07, respectively. The Packaging
Division wants to purchase 50,000 cans at $0.31 a can. Selling
internally will save $0.01 a can.
Assuming the Can Division is already operating at full capacity,
what is the minimum transfer price it should accept?
$0.69
$0.63
$0.32
$0.39

The Bathtub Division of Kirk Plumbing Corporation has recently
approached the Faucet Division with a proposal. The Bathtub
Division would like to make a special "ivory" tub with gold-plated
fixtures for the company's 50-year anniversary. It would make only
5,000 of these units. It would like the Faucet Division to make the
fixtures and provide them to the Bathtub Division at a transfer
price of $160. If sold externally, the estimated variable cost per
unit would be $140. However, by...

The Can Division of Waterway Industries manufactures and sells
tin cans externally for $1.50 per can. Its unit variable costs and
unit fixed costs are $0.24 and $0.13, respectively. The Packaging
Division wants to purchase 50,000 cans at $0.37 a can. Selling
internally will save $0.05 a can.
Assuming the Can Division has sufficient capacity, what is the
minimum transfer price it should accept?

Yolpin Company has a Components Division which produces parts
for product divisions within the company as well as for outside
manufacturers. The company's Business Products Division has asked
the Components Division to provide it with a new part, A12.
Production data related to A12 are as follows:
Units needed by Business Products Division
20,000 units
Variable production cost
$25 per unit
Allocated fixed production cost
$3.50 per unit
Unfortunately, producing the new part requires the same
production team within the...

15. Vaughn Manufacturing manufactures and sells high-priced
motorcycles. The Engine Division produces and sells engines to
other motorcycle companies and internally to the Production
Division. It has been decided that the Engine Division will sell
18000 units to the Production Division at 1050 a unit. The Engine
Division, currently operating at capacity, has a unit sales price
of $2050 and unit variable costs and fixed costs of $1050 and
$1000, respectively. The Production Division is currently paying
$1900 per unit...

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 30 minutes ago

asked 30 minutes ago

asked 50 minutes ago

asked 59 minutes ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 2 hours ago

asked 3 hours ago

asked 3 hours ago