Snuggle Up Company produces outdoor gear. Ziplt is a division of Snuggle that manufactures unbreakable zippers used in Snuggle’s gear and sold to other manufacturers. Cost information per zipper follows:

In addition, Ziplt’s capacity data follow:

Required:

1. Assuming Snuggle produces 300,000 sleeping bags per year, what is the overall benefit of using zippers from Ziplt instead of purchasing them externally?

2. Determine the maximum price that the sleeping bag production facility would be willing to pay to purchase the zippers from Ziplt. How is the overall benefit divided between the two divisions if this transfer price is used?

3. Determine the minimum that Ziplt will accept as a transfer price. How is the overall benefit divided between the two divisions if this transfer price is used?

4. Determine the mutually beneficial transfer price for the zippers.

5. How would your answer change if Ziplt were currently operating at capacity?

Transcribed Image Text:

Variable cost Full cost $0.80 1.10 Market price 3.00