42.56 is still incorrect

Division has asked Division of the same company to supply it with 7600 units of partL75 his year to use in one of its products Division Y has received a bid from an outside supplied for the parts at a price of $46 per unit. Division has the capacity to produce 20,400 units of partL763 per year Division X expects to sell 27.360 units of partL763 to outside customers this year at a price of $49.60 per unit. To the order from Division Division would have to cut back to sales to outside customers. Division X produces partL763 ota variable cost of $38 per unit. The cost of packing and shipping the parts for outside customers is $2 per unit. These packing and shipping costs would not have to be incurred on sales of the parts to Division Required: What is the range of transfer prices within which bom the Divisions profits would incremena rest of agreeing to the transfer of 7500 parts this year from Division X to Division Y Round your final answers to 2 decimal places) Answer is complete but not entirely correct 2016 bis in the best interests of the overall company for this transfer to take place! Expert Answer A Anonymous 22 minutes later Division X is having spare capacity of 3,040 units. These units it can sell at the variable cost per unit i.e without incurring any extra cost. But for additional 4,560 units, division X has to cut the market supply by forgoing the profit of $9.6 per unit. So for these additional units, division X will charge variable cost incurred plus the profit forgone by division X less the cost of packing and shipping saved by the division. Therefore transfer price for these additional units will be $45.6 ($38 + $9.6 - $2). Average cost per unit = [(3,040 x $38) + (4,560 x $45.6)] 77,600 = ($115,520 + $207,936)/7,600 = $323,456/7,600 = $42.56 Therefore, transfer pricing range will be $42.56 - $46. Was this answer helpful? 001