ESS AY. Write your answer in the space provided or on a separate sheet of paper

Question

ESS AY. Write your answer in the space provided or on a separate sheet of paper I) Neosho Corporation's Gauge Division manufactures and sells product no. 24, which is u sed irn refrigeration systems. Per-unit variable manufacturing and selling costs amount to $23 and $7, respectively. The Division can sell this item to external domestic customers for $40 or, alternatively, transfer the product to the company's Refrigeration Division. Refrigeration is currently purchasing a similar unit from Taiwan for $36·Assume use of the general transfer-pricing rule. Required: unit? A. What is the most that the Refrigeration Division would be wiling to pay the Gauge Division for B. If Gauge had excess capacity, what transfer price would the Division's management set? C. If Gauge had no excess capacity, what transfer price would the Division's management set? D. Repeat part "C," assuming that Gauge was able to reduce the variable cost of internal transfers b S5 per unit.

Explanation / Answer

A.$36

B.No estimate given for how much excess capacity given

Atleast$33should be set as transfer price as no selling cost will occur.

3.$36 as taiwan already supplying at this price.and sale cost will not accrue but shouldn't reduce profit.

4.when no excess capacity we are already selling @40

Reduce selling cost to$5,it comes to.$38but department already buying @$36.

There is no point we transfer at low price.

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