CDH Products, Inc. has a Processor Division that manufactures and sells a standard processor that could be used by another division in the company, the Display Division, in one of its products. Data concerning the Processor Division's standard processor are below: 125,000 $265 per unit Processor Division's capacity in units Selling price to outside customers Variable cost per unit Fixed cost per unit (at full capacity) $112 $42 Display Division is currently purchasing 15,000 of these standard processors per year from an external supplier at a cost of $250 per processor. However, Display Division must also pay $10 per processor for shipping charges when it purchases the processors from the external supplier. Assume Processor Division is currently operating at capacity and selling all the standard processors it can produce to outside customers. Is there a transfer price that would make both the Processor Division and Display Division better off than if the Display Division were to continue buying its processor from the outside supplier? Yes, both divisions are always better off with internal trade regardless of whether the selling division has enough idle capacity to handle all the buying division's needs Yes, the minimum transfer price the selling division should be willing to accept is less than the maximum transfer price the buying division should be willing to pay No, the minimum transfer price the selling division should be willing to accept exceeds the maximum transfer price the buying division should be willing to accept The answer cannot be determined from the information provided Division Gamma of KMB Corporation makes and sells a single product. Currently, Gamma produces and sells 21,000 units per year to outside customers at $79 per unit. Gamma's annual capacity is 22,000 units and the variable cost to make each unit is $54. Gamma's fixed manufacturing overhead cost is $11 per unit at the current production volume. Division Delta of KMB Corporation would like to buy 2,000 units a year from Division Gamma to use in one of Delta's products. What should be the lowest acceptable transfer price from the perspective of Division Gamma? O $66,50 per unit O $79 per unit O $54 per unit $44.50 per unit None of the above Division X of CHRW Inc. sells one of its components to other companies for $87.20 per unit. According to CHRW's accounting system, Division X's unit manufacturing costs for the component are: Direct materials $42.70 Direct labor $5.80 Variable $9.60 overhead Fixed $4.50 overhead Division Y of CHRW Inc. could use Division X's component in one of its products. Division Y currently buys this component from an outside supplier for $84 per unit and incurs variable purchasing costs of $7 per unit for every component purchased externally. What is the highest transfer price Division Y would be willing to pay Division X for this component? $87.20 per unit O $84 per unit O $91 per unit $62.60 per unit None of the above Division M of MCO Company produces a part it sells to other companies. Capacity and cost data for the part are as follows: Capacity 75,000 units Selling price $72 per unit Variable cost $50 per unit Fixed cost (at $12 per unit capacity) Division C, another division of MCO Company, would like to buy 8,000 units of this part from Division M. Division C is currently buying the part from an outside source at $70 per unit. Assume Division M currently plans to produce and sell 73,000 units of its part to other companies. According to the transfer pricing guidelines, what is the lowest transfer price Division M should be willing to accept from Division C for its part? $62 per unit O $50 per unit $72 per unit $66.50 per unit O None of the above
