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 Case A B 97,000 97,000 108,000 93,000 $ 50 $ 26 $ 27 $ 7 $ 11 $ 6 15,000 15,000 $ 40 $ 22 Exercise 11-13 (Algo) Part 1 Required: 1. Refer to the data in case A above. Assume in this case that $4 per unit in variable selling costs can be avoided 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 man decisions on their own, will a transfer probably take place? Answer is not complete. Complete this question by entering your answers in the tabs below. Req 1A Req 18 Req 1C What is the highest acceptable transfer price from the perspective of the buying division? Highest acceptable transfer price Complete this question by entering your answers in the tabs below. Re1A Req 18 Req 1C What is the lowest acceptable transfer price from the perspective of the selling division? Lowest acceptable transfer price S 11 Req 1A Req 1B Req 1C What is the range of acceptable transfer prices (if any) between the two divisions? If the managers are free to and make decisions on their own, will a transfer probably take place? Identify the range of acceptable transfer prices (if any): There is not a range of acceptable transfer prices. There is a range of acceptable transfer prices as shown below: Transfer price Are the managers likely to agree on a transfer price? S Yes No + < Req 1B Reg 1C Line folowing imoration applies to the questions displayed below.j 2 of 2 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 97,000 97,000 108,000 93,000 $ 50 $26 Variable costs per unit Fixed costs per unit (based on capacity) $ 27 $ 7 $11 $ 6 Division Y: Number of units needed for production 15,000 15,000 Purchase price per unit now being paid to an outside supplier $ 40 $ 22 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 m decisions on their own, will a transfer probably take place? Answer is not complete. Complete this question by entering your answers in the tabs below. Req 2A Req 28 Req 2C What is the lowest acceptable transfer price from the perspective of the selling division? Lowest acceptable transfer 46 price Reg 2A Req 20 > Answer is not complete. Complete this question by entering your answers in the tabs below. Req 2A Req 2B Req 2C What is the highest acceptable transfer price from the perspective of the buying division? Highest acceptable transfer price $ 40X ete this Req 2A Req 28 Req 2C 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? Identify the range of acceptable transfer prices (if any): There is not a range of acceptable transfer prices. There is a range of acceptable transfer prices as shown below: 40 S Transfer price Are the managers likely to agree on a transfer price? Yes No