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Safari File Edit View History Bookmarks window Help ? ? , 68% IL' ? E )) Sat Jun 30 5:02 PM Alex C E ezto.mneducation.com 0? Home - alamo.edu Chapter 10 Exercises value 11.11 points 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 $1.60; full cost is $2.70. Comparable widgets sell on the open market for $3.40 each. Division A can produce up to 3.10 million widgets per year but is currently operating at only 50 percent capacity. Division B expects to use 155,000 widgets in the current year Required 1. Determine the minimum and maximum transfer prices. (Enter your answers to 2 decimal places.) Minimum Transfer Price Maximum Transfer Price 2. Calculate Tulip Company's total benefit of having the widgets transferred between these divisions. Benefit 3. If the transfer price is set at $1.60 per unit, determine how much profit Division A will make on the transfer. Determine how much Di answers to 2 decimal places.) B will save by not purchasing the widgets on the open market. (Round your Division A Profit per Unit Division B Savings per Unit afari.dmg 0

Explanation / Answer

Rreq1. Minimum transfer price is a price set by Selling division at which it is able to manufacture the units to be transferred (excess capacity exist) Hence, Minimum transfer price is a variable cost per unit i.e, 1.60 per unit Maximum transfer price is the price at which it is available in market to Purchasing division. Max. transfer price is $ 3.40 per unit Req 2: Total benefit Number of units transferred 155000 Savings per unit (3.40-1.60) 1.8 Total benefit 279000 Req 3: Profit Division A 0 Savings Division B 1.8 per unit Req 4: Mutually benefit transfer price: Min transfer price 1.6 Add: Half of th benefit per unit (1.80 /2) 0.9 Mutually benefit transfer price: 2.5

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