Nezotiating a Trantfer Price with Exceos Copacity The Foundry Division Findlay P

Question

Nezotiating a Trantfer Price with Exceos Copacity The Foundry Division Findlay Purmps Inc. preduces mecal parts that are scld tthe company's Assembly Dison and to aside customes. Oper ating data fer the Foundry Divisionor 2017 are as fellaws To the Assembly To Gatslde CMslon Customes Total Sales 400,000 psrts x $7.80 13,120,000 300,000 psrts S8.00 eriables expenses at 3450 Contibution margin Fixed expenses S2,100,000 35,520,000 1,B40,000 1,380,000 3,220,000 2D,DDD ,020,000 2,300,aa0 (7DD,DDD) :525,000:-?,225,000 I 5B0,000 S495,000 31,075,000 llocated on the bssis of unit sales The Assenbly Divisian has just received an affer frem an outside supplier to supply partsat 56.05 each. The Foundry Divisin manageisn illing to nee the 56.05 price. She arges hat it casts her .35 pepartto praduce arid sel to the Asserbly Divisiar, sales. Sales to outside custerners are at à maximurn. 300,.000 parts so she would shaw na profits on teAssebly Divis a. verify the Foundry Division's $6.35 unit cost figure. Enter answers usiNgw decimal places. Veriable costss Total unit cost 35 c. Couldl the Foundry Dson meet the $6.05 price and soll show a net profitfor sales to the Assemby Dsian? 5how computations. Use a negatve sign only to indicate a net loss, Otherwise clo not use negative signs ith your answers. Sales to Asembly Dvislon atS&os; price Contribution margin Net profit(losss

Explanation / Answer

Answer a ) Varification of Foundry Division's $6.35 unit cost figure

Answer c

Sales to Assembly Division at $6.05 price

Thus , if parts are sold at $6.05 per unit to Assembly Division there will a net loss of $120,000

Note : As total variable costs changes on change in sales volume (units) & in the given case only selling price changed from $7.80 to $6.05 & volume ie units sold remains same , thus the total variable costs remains unchanged. Fixed cost by default always remains constant.

Variable cost [given] $4.60 Fixed Costs [ $700,000 / 400,000 units] $1.75 Total unit costs $6.35

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