Required information Exercise 11A-3 Transfer Pricing Situations (LO11-5) The sow

Question

Required information Exercise 11A-3 Transfer Pricing Situations (LO11-5) The sowowing nformation appies to the questions displayed below, In each of the cases below, assume Dvisionx has a product that can be sold elther to outside customers or to Drvision Y of the same company for use in its production process. The managers of the divisions are evaluated based on their dvisional profts Case Division Xi Capacity in units Number of units being sold to outside custoners Selling price per unit to outside customers Variable costs per unit Fixed costs per unit (based on capacity) 106,000 102,000 106,000 79,000 32 52 $ 23 $ Division Y: Number of units needed for production Purchase price per unit now being 23,000 23,000 paid to an outside supplier 45 $ 36 Exercise 11A-3 Part 1 Required: 1 Refer to the data in case A above. Assume in this case that $3 per unit in variable selling costs can be avoided on ntracompany sales a. What is the lowest acceptable transfer price from the perspective of the selling dvision? D. What is the highest acceptable transfer price from the perspective of the buying division? c. What is the range of acceptable transfer prices If any) between the two divisions? If the managers are free to negotiate and make decisions on their own, will a transfer probably take place? Complete this question by entering your answers in the tabs below Req 1A Req 1B Req 1C What is the lowest acceptable transfer price from the perspective of the selling division? Reg 1A Req 1B

Explanation / Answer

1a Lowest acceptable transfer price will be selling price to outside customers less any avoidable costs Lowest acceptable transfer price = $52-3=$49 b Highest acceptable transfer price = $45 c There is not a range of aceptable transfer prices. No, the managers are not likely to agree on a transfer price

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