Word Wizard is a publishing company with a number of different book lines. Each line has contracts
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Question:
Instructions
Determine whether the printing should be done internally or externally, and the appropriate transfer price, under each of the following situations.
(a) Assume that the printing operation is booked solid for the next 2 years, and it would have to cancel an obligation with an outside customer in order to meet the needs of the internal division.
(b) Assume that the printing operation has available capacity.
(c) The top management of Word Wizard believes that the printing operation should always do the printing for the company’s authors. On a number of occasions, it has forced the printing operation to cancel jobs with outside customers in order to meet the needs of its own lines. Discuss the pros and cons of this approach.
(d) Calculate the change in contribution margin to each division, and to the company as a whole, if top management forces the printing operation to accept the $0.007 per page transfer price when it has no available capacity.
Related Book For
Mathematical Statistics with Applications in R
ISBN: 978-0124171138
2nd edition
Authors: Chris P. Tsokos, K.M. Ramachandran
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