Goodsir Motors manufactures specialty tractors. It has two divisions: a Tractor
ID: 2563033 • Letter: G
Question
Goodsir Motors manufactures specialty tractors. It has two divisions: a Tractor Division and a Tire Division. The Tractor Division can use the tires produced by the Tire Division. The market price per tire is $50 The Tire Division has the following costs per tire:
-More Info: Direct material cost per tire $31, Conversion cost per tire $5 (assume the $5 includes only the variable portion of conversion cost)
-Fixed manufactoring overhead cost for the year is expected to total $240,000. The tire division expects to manufacture 60,000 tire this year. The fixed manufactoring overhead per tire is $4 ($240,000 divided by 60,000).
Requirements:
1.
2.
If Goodsir Motors has a cost-plus transfer price policy of full absorption cost plus 10%, what would the transfer price be?
3.
If the Tire Division is currently producing at capacity (meaning that it is selling every single tire it has the capacity to produce), what would likely be the fairest transfer price strategy to use? What would be the transfer price in this case?
1.
Assume that the Tire Division has excess capacity, meaning that it can produce tires for the Tractor Division without giving up any of its current tire sales to outsiders. If GoodsirMotors has a negotiated transfer price policy, what is the lowest acceptable transferprice? What is the highest acceptable transfer price?
2.
If Goodsir Motors has a cost-plus transfer price policy of full absorption cost plus 10%, what would the transfer price be?
3.
If the Tire Division is currently producing at capacity (meaning that it is selling every single tire it has the capacity to produce), what would likely be the fairest transfer price strategy to use? What would be the transfer price in this case?
Explanation / Answer
ans 1 The lowest acceptable price is the variable cost 31+5=$36 Highest acceptable transfer price is the market price of the tire $50 ans 2 Cost plus transfer price 44 (36+4)*110% ans 3 The margin lost if it is sold to outsider+cost of tire Fairest transfer price is the market price of $50 If any doubt plaese comment
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