6. You have been provided with the following information for Division X of a decentralized company:

Selling price	$	48
Variable cost per unit		36
Fixed cost per unit		18
Sales volume (units)		90,000
Capacity (units)		100,000

Division W would like to purchase all of its units internally. Division W needs 24,000 units each period and currently pays $45 per unit to an outside firm. What is the lowest price that Division X could accept from Division W? Assume that Division W wants to use a sole supplier and will not purchase less than 24,000 from a supplier.

$43.

$48.

$45.

$27.

7. Avery Corporation has two divisions, A and B, which are both organized as profit centers; Division A produces and sells widgets to Division B and to outside customers. Division A has total costs of $47, $26 of which are variable. Division A is operating significantly below capacity and sells the widgets for $68.

Division B has received an offer from an outsider vendor to supply all the widgets it needs (20,000 widgets) at a cost of $63. The manager of Division B is considering the offer but wants to approach Division A first.

What is the maximum transfer price from Division A to Division B?

$26.

$63.

$68.

$47.

8. Cruises, Inc., operates two divisions: (1) a management division that owns and manages cruise ships in the Florida Keys and (2) a repair division that operates a dry dock in Marble Sand Florida. The repair division works on company ships, as well as other large-hull ships. The repair division has an estimated variable cost of $32.00 per labor-hour. The repair division has a backlog of work for outside ships. They charge $55.00 per hour for labor, which is standard for this type of work. The management division complained that it could hire its own repair workers for $33.50 per hour, including leasing an adequate work area.

What is the maximum transfer price per hour that the management division should pay?

$53.50.

$32.00.

$33.50.

$49.50.

9. Flowers and Flowers, Inc., has two divisions. Division A has an investment base of $550,000 and produces (and sells) 77,000 units of Eyne at a market price of $8.00 per unit. Variable costs total $2.40 per unit, and fixed charges are $2.00 per unit (based on a capacity of 94,250 units). Division B wants to purchase 21,000 units of Eyne from Division A. However, Division B is only willing to pay $5.20 per unit.

What is the contribution margin for Division A without the transfer to Division B?

$616,000.

$168,000.

$431,200.

$400,400.

10. Flowers and Flowers, Inc., has two divisions. Division A has an investment base of $1,100,000 and produces (and sells) 154,000 units of Eyne at a market price of $19.00 per unit. Variable costs total $5.70 per unit, and fixed charges are $6.00 per unit (based on a capacity of 190,500 units). Division B wants to purchase 43,000 units of Eyne from Division A. However, Division B is only willing to pay $12.35 per unit.

What is the minimum transfer price for the 43,000 unit order that Division A would accept if it wishes to maintain its pre-order contribution?

$5.70.

$7.71.

$13.00.

$6.00.

11. Cohasset Company currently manufactures all component parts used in the manufacture of various hand tools. Hurley Division produces a steel handle used in three different tools. The budget for these handles is 120,000 units with the following unit cost.

Direct material	$	1.55
Direct labor		1.35
Variable overhead		1.05
Fixed overhead		0.50
Total unit cost	$	4.45

Ironwood Division purchases 39,000 handles from Hurley Division and completes the hand tools. An outside supplier, R & M Steel, has offered to supply 39,000 units of the handle to Ironwood Division for $2.26 per unit. Hurley currently has idle capacity that cannot be used.

If Cohasset would like to develop a range of transfer prices, what would be the maximum transfer price that Ironwood would be willing to pay?

$4.45.

$3.95.

$2.26.

$2.90.

12. Given the following information for Division K:

Selling price to outside customers	$	135
Variable cost per unit	$	64
Total fixed costs	$	640,000
Capacity in units		40,000

Division L would like to purchase internally from Division K. Division L now purchases 13,500 units each period from outside suppliers at $117 per unit. Division K has ample excess capacity to handle all of Division L's needs. What is the lowest price that Division K could accept?

$64.00.

$117.00.

$80.00.

$135.00.