The BIGMOTORCAR Co. has a number of divisions within its large organization. The VAN division has...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
The BIGMOTORCAR Co. has a number of divisions within its large organization. The VAN division has offered to purchase all of its wheels from the WHEELS division for $42 per wheel. Below is the current production cost information of the WHEELS division: Capacity in units Current production levels Cost data at Current Production Levels: Variable manufacturing costs per wheel Fixed manufacturing costs per wheel Total absorption cost per wheel 700,000 wheels 500,000 wheels $31 $18 $49 The WHEELS division has been selling 500,000 wheels per year to outside buyers at $58 each. The VAN division is currently buying 180,000 wheels from outside suppliers at $55 per wheel. Required: a. Determine the transfer pricing range and decide (make a choice) if the WHEELS division manager should accept the VAN division manager's offer, assuming that both divisions will make appropriate decentralized planning decisions. Explain your decision. b. In general, and considering the facts of the problem, what risks and other considerations does the WHEELS division manager have to consider if the deal is accepted. The BIGMOTORCAR Co. has a number of divisions within its large organization. The VAN division has offered to purchase all of its wheels from the WHEELS division for $42 per wheel. Below is the current production cost information of the WHEELS division: Capacity in units Current production levels Cost data at Current Production Levels: Variable manufacturing costs per wheel Fixed manufacturing costs per wheel Total absorption cost per wheel 700,000 wheels 500,000 wheels $31 $18 $49 The WHEELS division has been selling 500,000 wheels per year to outside buyers at $58 each. The VAN division is currently buying 180,000 wheels from outside suppliers at $55 per wheel. Required: a. Determine the transfer pricing range and decide (make a choice) if the WHEELS division manager should accept the VAN division manager's offer, assuming that both divisions will make appropriate decentralized planning decisions. Explain your decision. b. In general, and considering the facts of the problem, what risks and other considerations does the WHEELS division manager have to consider if the deal is accepted.
Expert Answer:
Answer rating: 100% (QA)
a Transfer Pricing Range and Decision The transfer pricing range is the range of prices within which the transfer of goods or services between divisions of the same company can occur It ensures that b... View the full answer
Related Book For
Financial Reporting Financial Statement Analysis and Valuation a strategic perspective
ISBN: 978-1337614689
9th edition
Authors: James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Posted Date:
Students also viewed these accounting questions
-
Dr. Richard Swadron, president of Stephenville University (SU) has contracted Fanshawe Consulting Advisors (FCA) to submit a report involving six elements of the SU operations. While president...
-
Planning is one of the most important management functions in any business. A front office managers first step in planning should involve determine the departments goals. Planning also includes...
-
Ritz & Co., CPAs is a professional services firm located in Makati City that offers broad range of services to its clients including audit and assurance, tax services, and advisory and...
-
Sketch the graph and draw several vertical and horizontal traces. (x, y) = sin(x y)
-
Rod AB is held in place by the cord AC. Knowing that c = 840 mm and that the moment about B of the force exerted by the cord at point A is 756 Nm, determine the tension in the cord. 240 mm 450m
-
Following are the adjusted current funds trial balances of Community Association for Children With Disabilities, a voluntary health and welfare organization, on June 30, 20X4: Required a. Prepare a...
-
What is counting
-
The Nutmeg Corporation produces four different products, each in a 1-pound can: Almond Pack, Walnut Pack, Gourmet Pack, and Thrifty Pack. Three types of nuts are used in Nutmegs product almonds,...
-
Use the following information about a hypothetical government security dealer named M.P. Jorgan. Market yields are in parenthesis, and amounts are in millions. Assets Liabilities and Equity Cash $10...
-
You want to understand if the final model can be improved by selecting customers whose properties are in either Urban or Semi-urban area. Which of the following model did you find from your analysis...
-
Compare and contrast this issue to the issue of financial statement fraud in the context of accounting performance-based compensation.
-
Sisk Company has owned 10 percent of Maust, Inc., for the past several years. This ownership did not allow Sisk to have significant influence over Maust. Recently, Sisk acquired an additional 30...
-
Perez, Inc., applies the equity method for its 25 percent investment in Senior, Inc. During 2011, Perez sold goods with a 40 percent gross profit to Senior. Senior sold all of these goods in 2011....
-
When an investor elects the fair-value option for a significant influence investment, cash dividends received by the investor from the investee should be recorded as a. A deduction from the investors...
-
Give an example of stratifying a population of purchase orders.
-
Which of the following reasons best explains why a practitioner should obtain an engagement letter for a PrimePlus engagement? a. Attestation standards require that the practitioner use an engagement...
-
Fixed cost per year VC per Participant VC per Workshop Tuition per Participant Revenue Instructor wages $4,000 Workshop supplies $1,000 Administrative expenses $2,000 $0 $20 $10 $50 $20 $30 $100
-
KD Insurance Company specializes in term life insurance contracts. Cash collection experience shows that 20 percent of billed premiums are collected in the month before they are due, 60 percent are...
-
Exhibit 13.6 presents selected hypothetical data from projected financial statements for Steak 'n Shake for Year +1 to Year +11. The amounts for Year +11 reflect a long-term growth assumption of 3%....
-
Define earnings management. Discuss why it is difficult to discern whether a firm does in fact practice earnings management?
-
Assume that a company needs to acquire a large special-purpose materials handling facility. Given that no outside vendor exists for this type of facility and that the company has available...
-
Bank Reconciliation (Partial)} The cash account for Feldman Company contains the following information for April: \section*{Required:} Assuming there were no deposits in transit at March 31 and that...
-
Bank Reconciliation} Valentine Investigations has the following information for its cash account: Valentine's bank statement for February contained the following information: A comparison of company...
-
What three elements make up audit risk? Define each.
Study smarter with the SolutionInn App