Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Benson Radio Corporation is a subsidiary of Salem Companies. Benson makes car radios that it sells to retail outlets. It purchases speakers for the radios

Benson Radio Corporation is a subsidiary of Salem Companies. Benson makes car radios that it sells to retail outlets. It purchases speakers for the radios from outside suppliers for $70 each. Recently, Salem acquired the Vernon Speaker Corporation, which makes car radio speakers that it sells to manufacturers. Vernon produces and sells approximately 130,000 speakers per year, which represents 70 percent of its operating capacity. At the present volume of activity, each speaker costs $58 to produce. This cost consists of a $47 variable cost component and an $11 fixed cost component. Vernon sells the speakers for $75 each. The managers of Benson and Vernon have been asked to consider using Vernons excess capacity to supply Benson with some of the speakers that it currently purchases from unrelated companies. Both managers are evaluated based on return on investment. Vernons manager suggests that the speakers be supplied at a transfer price of $75 each (the current selling price). On the other hand, Bensons manager suggests a $70 transfer price, noting that this amount covers total cost and provides Vernon a healthy contribution margin.

Required

a. Based on market prices suggested by the managers, which transfer price would you recommend?

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

Managerial Accounting Tools For Business Decision Making

Authors: Jerry J. Weygandt, Paul D. Kimmel, Ibrahim M. Aly, Donald E. Kieso

6th Canadian Edition

1119731828, 9781119731825

More Books

Students also viewed these Accounting questions

Question

Evaluate each iterated integral. (13 - dx dy X

Answered: 1 week ago