Question
TB Problem Qu. 11A-91 Fyodor Corporation has a Parts Division that... Fyodor Corporation has a Parts Division that does work for other Dlvsions In the company as well as for outside customers The nt has asked the Parts Dvision to provide It with 6,000 speclal parts each year The special parts would production costs The Machine Divislon has a bid from an outside suppler for the special parts at $31.20 per unit in order to have time and space to produce the special part, the Parts Division would have to cut beck production of another part-the QR4 that it presenty is producing The QR4 sells for $40 per unit, and requires $20 per unt in varlable production costs. Packaging and shipping costs of the QR4 are $2 per unt Packaging and shlpping costs for the new speclal part would be only $0.50 per unt. The Parts Division is now producing and seting 30,000 units of the ana each year Production and sales or the OR4 would drop by 5% if the new special part is produced for the Machine Division. a. What is the range of transfer prices within which both the Divisions' profits would increase as a resuit of agreeing to the transfer of 6,000 speclal parts per year from the Parts Division to the Machine Division? (Round your final answers to 2 declmal places) b. Is it in the best Inserests of Fyodor Corporation for this trans er to take place?
Explanation / Answer
Special Parts Units Rate Total Value Sales 6,000 31 1,87,200 V.C 6,000 21 1,26,000 Packaging etc 6,000 0.50 3,000 Contribution 58,200 QR4 Proftiablity to give up for producing special parts Units Rate Total Value Sales 1,500 40 60,000 V.C 1,500 20 30,000 Packaging etc 1,500 2 3,000 Contribution 27,000 no of units of special parts 6,000 Contribution per unit for spl part 4.50 Add: V.C per unit of Spl Part 21.00 Add; Packaging & shipping 0.50 Total Transfer price > 26.00 however the price should be < 31.20 per unit the bid from an outside supplier Yes , it is profitable that transfer should take place because company is making higher profit by 31,200 (58200-27000)
