Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Adler Industries is a vertically integrated firm with several divisions that operate as decentralized profit centres. Adler's System Division manufactures scientific instruments and uses the

image text in transcribed

Adler Industries is a vertically integrated firm with several divisions that operate as decentralized profit centres. Adler's System Division manufactures scientific instruments and uses the products of two of Adler's other divisions. The Board Division manufactures printed circuit boards (PCBs). One PCB model is made exclusively for the Systems Division using proprietary designs, while less complex models are sold in outside markets. The products of the Transistor Division are sold in a well-developed competitive market; however, one transistor model is also used by the Systems Division. The costs per unit of the products used by the systems Division are presented below: Direct materials Direct labour Variable overhead Fixed overhead Total cost PCB $2.50 4.50 2.00 0.80 $9.80 Transistor $0.80 1.00 0.50 0.75 $3.05 The Board Division sells its commercial products at full cost plus a 25% markup and believes the proprietary board made for the Systems Division would sell for $12.25 per unit on the open market. The market price of the transistor used by the Systems Division is $3.70 per unit. The Board and Systems Divisions have negotiated a transfer price of $11.00 per printed circuit board. This price will: O Cause the Board Division to reduce the number of commercial printed circuit boards it manufactures Motivate both divisions as estimated profits are shared O Encourage the Systems Division to seek an outside source for printed circuit boards Demotivate the Board Division causing mediocre performance

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Financial Accounting Theory and Analysis Text and Cases

Authors: Richard G. Schroeder, Myrtle W. Clark, Jack M. Cathey

10th edition

470646284, 978-0470646281

More Books

Students also viewed these Accounting questions