Question 1 Crede Inc. has two divisions. Division A makes and sells student desk
ID: 2568075 • Letter: Q
Question
Question 1
Crede Inc. has two divisions. Division A makes and sells student desks. Division B manufactures and sells reading lamps.
Each desk has a reading lamp as one of its components. Division A can purchase reading lamps at a cost of $ 9.83 from an outside vendor. Division A needs 11,300 lamps for the coming year.
Division B has the capacity to manufacture 49,900 lamps annually. Sales to outside customers are estimated at 38,600 lamps for the next year. Reading lamps are sold at $ 12.35 each. Variable costs are $ 7.50 per lamp and include $ 1.36 of variable sales costs that are not incurred if lamps are sold internally to Division A. The total amount of fixed costs for Division B is $ 75,700 .
Consider the following independent situations.
(a)
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(b)
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Question 1
Crede Inc. has two divisions. Division A makes and sells student desks. Division B manufactures and sells reading lamps.
Each desk has a reading lamp as one of its components. Division A can purchase reading lamps at a cost of $ 9.83 from an outside vendor. Division A needs 11,300 lamps for the coming year.
Division B has the capacity to manufacture 49,900 lamps annually. Sales to outside customers are estimated at 38,600 lamps for the next year. Reading lamps are sold at $ 12.35 each. Variable costs are $ 7.50 per lamp and include $ 1.36 of variable sales costs that are not incurred if lamps are sold internally to Division A. The total amount of fixed costs for Division B is $ 75,700 .
Consider the following independent situations.
(a)
Your answer is partially correct. What should be the minimum transfer price accepted by Division B for the 11,300 lamps and the maximum transfer price paid by Division A? (Round answers to 2 decimal places, e.g. 10.50.)Minimum transfer price accepted by Division B $ per unit Maximum transfer price paid by Division A $ per unit Click if you would like to Show Work for this question:
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Attempts: 1 of 1 used(b)
Suppose Division B could use the excess capacity to produce and sell externally 20,400 units of a new product at a price of $7.72 per unit. The variable cost for this new product is $6.50 per unit. What should be the minimum transfer price accepted by Division B for the 11,300 lamps and the maximum transfer price paid by Division A? (Round answers to 2 decimal places, e.g. 10.50.)Minimum transfer price accepted by Division B $ per unit Maximum transfer price paid by Division A $ per unit Click if you would like to Show Work for this question:
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Explanation / Answer
a)
Minimum transfer price accepted by B = 6.14
B have exess capacity so they needs to charge the variable cost only. except variable cost for external sales.
=7.50-1.36=6.14
*)
Maximum price paid by Division A will be 9.87. Because it is the other available option for them.and they also buy from externally for $ 9.87.
b)
Minimum transfer price accepted by B = 7.36
Variable cost + oppertunity cos(lost contribution margin)
Lost contribution margin for B for give lamps for division A= 7.72-6.50=1.22
*)
Maximum price paid by division A = 9.87
Because not yet there is any more compatitive prices available.Division A does't have any other option.
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