Hint(s) Check My Work (1 remaining) eBook Animated Example Exercise Transfer Pri

Question

Hint(s) Check My Work (1 remaining) eBook Animated Example Exercise Transfer Pricing The materials used by the Winston-Salem Division of Fox Company are currently purchased from outside suppliers at $60 per unit. These same materials are produced by Fox's Flagstaff Division. The Flagstaff Division can produce the materials needed by the Winston-Salem Division at a variable cost of $28 per unit. The division is currently producing 105,000 units and has capacity of 150,000 units. The two divisions have recently negotiated a transfer price of $39 per unit for 45,000 units. By how much will each division's income increase as a result of this transfer? 3 495000 $ 94500c Winston-Salem Division Flagstaff Division Hide Feedback Incorrect Check y Work Feedback Multiply the units transferred by the difference between the transfer price and the variable cost per unit (supplying company) or the market price and the transfer price (purchasing company).

Explanation / Answer

Solution:'Winston Salem Division = 945,000

Flafstff division : 495,000

Working:

Winston Salem Division

Change in sales

Decrease in variable costs

945000

((45,000 units × ($60 – $39))

Increase in income

945000

Flagstaff Division

Increase in sales (45,000 units × $39)

1755000

Increase in variable costs (45,000 units × $28)

1260000

Increase in income

495000

Winston Salem Division

Change in sales

Decrease in variable costs

945000

((45,000 units × ($60 – $39))

Increase in income

945000

Flagstaff Division

Increase in sales (45,000 units × $39)

1755000

Increase in variable costs (45,000 units × $28)

1260000

Increase in income

495000

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