80.2K

Verified Solution

Link Copied!

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
	A	B
Division X:
Capacity in units	93,000	106,000
Number of units being sold to outside customers	93,000	84,000
Selling price per unit to outside customers	$52	$33
Variable costs per unit	$28	$20
Fixed costs per unit (based on capacity)	$8	$5
Division Y:
Number of units needed for production	22,000	22,000
Purchase price per unit now being paid to an outside supplier	$46	$40

1) Refer to the data in case A above. Assume in this case that $2 per unit in variable selling costs can be avoided on intracompany sales.

Variable cost per unit

Less: Avoidable cost

Total contribution margin on lost sales

No. of units transferred

Transfer price

2) Refer to the data in case B above. In this case, there will be no savings in variable selling costs on intracompany sales. Determine the transfer price of the selling division.

Variable cost per unit

Total contribution margin on lost sales

No. of units transferred

Transfer price

Answer & Explanation Solved by verified expert

See Answer