11/17/2015 Lab Chepler 10 Rosa Arnadottir Whitecotton: Managerial Accounting 2e:
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11/17/2015 Lab Chepler 10 Rosa Arnadottir Whitecotton: Managerial Accounting 2e: ACCT 2302 Fall 2015 Syn 34239-014 Lab Chapter 1o 2. 4.00 points 400 points Tulip Company is made up of two divisions: A and B. Division A produces a widget that Division B usos in the practon of its podet. Varatie cost per widget is $0.7% full cost is $1.00. Comparatie widgets sell on the open market for $1.50 each. Division A can produce up to 2 milion widgets per year but is cumently operating 0y 50 pocent capacity. Dision B expects te une 10,000 widgets in the current year. 1. Detemine the minimum and maximum transfer prices. Minimum Transfer Price Maximum Transfer Price 2 Calculace Tulip Company's total benefit of having the widgets transferred betwreen these divisions. Total Beneft 3. if the transfer price is set at $0.75 per unit, detemine 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.) per Unit per Unit Division A Profit Division B Savings 4. If the transfer price is set at $1.50 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 placesExplanation / Answer
1. The minimum transfer price will be equal to the variable cost of producing one widget that is $0.75 per widget because below that price Division A will sufer loss.
The maximum transfer price will be the price at which widgets sell in the open market that is $1.5 per widget.
2. If the widgets are transfered from Division A to Division B , the total benefit to Company T will be $75,000.
Open market price = $1.5
Variable costs to Division A = $0.75
Number of widgets transfered = 100,000
Total benefit to the company = ($1.5 - $0.75) x 100,000 = $75,000
3. If the widgets are transferred at $0.75 per unit, Division A will make no profits because its variable costs are $0.75 per unit. However, Division B will save $75,000 by not purchasing the widgets from open market.
4. If the transfer price is set at $1.50 per unit, Division A will make a profit of $75,000 on the transfer.
Transfer price = $1.50
Variable costs to Division A = $0.75
Number of widgets transfered = 100,000
Profit to Division A = ($1.50 - $0.75) x 100,000 = $75,000
If the transfer price is $1.50 per unit, Division B will not save anything by not purchasing the widgets from the open market because the transfer price and the open market prices are same.
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