EXERCISE 11-13 Transfer Pricing Situations LO11-3 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 A Case B 200,000 200,000 200,000 160,000 $90 $70 $13 40,000 $86 $75 $60 $8 40,000 $74 Required: 1. Refer to the data in case A above. Assume in this case that $3 per unit in variable selling costs can be avoided on intracompany sales. Page 527

EXERCISE 11-13 Transfer Pricing Situations LO11-3 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: Case B Capacity in units 200,000 200,000 Number of units being sold to outside customers 200,000 160,000. Selling price per unit to outside customers. $90 $75 Variable costs per unit Fixed costs per unit (based on capacity) Division Y: Number of units needed for production $70 $60 $13 $8 40,000 40,000 $86 $74 Required: Purchase price per unit now being paid to an outside supplier 1. Refer to the data in case A above. Assume in this case that $3 per unit in variable selling costs can be avoided on intracompany sales. Page 527