Mountain Industries operates a Manufacturing Division and an Assembly Division.
ID: 2474356 • Letter: M
Question
Mountain Industries operates a Manufacturing Division and an Assembly Division. Both divisions are evaluated as profit centers. Assembly buys components from Manufacturing and assembles them for sale. Manufacturing sells many components to third parties in addition to Assembly. Selected data from the two operations follow:
Current production levels in Manufacturing are 102,000 units. Assembly requests an additional 20,200 units to produce a special order. What transfer price would you recommend?
Suppose Manufacturing is operating at full capacity. What transfer price would you recommend?
Suppose Manufacturing is operating at 192,000 units. What transfer price would you recommend?(Round your answer to 2 decimal places.)
Mountain Industries operates a Manufacturing Division and an Assembly Division. Both divisions are evaluated as profit centers. Assembly buys components from Manufacturing and assembles them for sale. Manufacturing sells many components to third parties in addition to Assembly. Selected data from the two operations follow:
Explanation / Answer
Answer
Answer a
Current production levels in Manufacturing are 102,000 units. Assembly requests an additional 20,200 units to produce a special order. What transfer price would you recommend?
Recommended transfer price = Variable cost per unit + fixed cost per unit
= $ 22 per unit + (10,020,000/ 202,000)
= $ 22 per unit + $ 49.60 per unit
= 71.60 per unit
Answer : Recommended transfer price is $ 71.60 per unit
Answer b
Suppose Manufacturing is operating at full capacity. What transfer price would you recommend?
Recommended transfer price = market price
= $ 82 per unit
Answer : Recommended transfer price is $ 82 per unit
Answer c
Suppose Manufacturing is operating at 192,000 units. What transfer price would you recommend? (Round your answer to 2 decimal places.)
Manufacturing has total capacity of 202,000 and Manufacturing is operating at 192,000 units.
So recommended transfer price for 10000 units (202,000 - 192,000) is 71.60 per unit (as per answer (a) above).
Recommended transfer price for remaining 10200 units (20200 – 10000) is $ 82 per unit (as per answer (b) above).
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