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Exercise 1 1 - 1 3 ( Algo ) Transfer Pricing Situations [ LO 1 1 - 3 ] Skip to question [ The following
Exercise Algo Transfer Pricing Situations LO
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The following information applies to the questions displayed below.
In each of the cases below, assume Division X has a product that can be sold either to outside customers or to Division Y of the same company for use in its production process. The managers of the divisions are evaluated based on their divisional profits.
Case
A B
Division X:
Capacity in units
Number of units being sold to outside customers
Selling price per unit to outside customers $ $
Variable costs per unit $ $
Fixed costs per unit based on capacity $ $
Division Y:
Number of units needed for production
Purchase price per unit now being paid to an outside supplier $ $
Exercise Algo Part
Required:
Refer to the data in case B above. In this case, there will be no savings in variable selling costs on intracompany sales.
a What is the lowest acceptable transfer price from the perspective of the selling division?
b What is the highest acceptable transfer price from the perspective of the buying division?
c What is the range of acceptable transfer prices if any between the two divisions? If the managers are free to negotiate and make decisions on their own, will a transfer probably take place?
THE ANWSER IS NOT
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