Exercise 11-13 (Algo) Transfer Pricing Situations [LO11-3] [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. 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 11-13 (Algo) Part 2 A Case 102,000 102,000 $ 59 $ 26 $ 10 16,000 $ 49 Answer is not complete. B 108,000 92,000 $ 33 $ 16 $6 16,000 $ 32 Required: 2. 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?

Exercise 11-13 (Algo) Transfer Pricing Situations (LO11-3] [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 B Division X: Capacity in units 102,000 108,000 Number of units being sold to outside customers Selling price per unit to outside customers 102,000 92,000 $ 59 $33 Variable costs per unit $ 26 $ 16 Fixed costs per unit (based on capacity) $ 10 56 Division Y: Number of units needed for production 16,000) 16,000 Purchase price per unit now being paid to an outside supplier $49 $ 32 Exercise 11-13 (Algo) Part 2 Required: 2. 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? Answer is not complete.