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Federated Manufacturing Incorporated ( FMI ) produces electronic components in three divisions: industrial, commercial, and consumer products. The commercial products division annually purchases 1 0
Federated Manufacturing Incorporated FMI produces electronic components in three divisions: industrial, commercial, and consumer products. The commercial products division annually purchases units of part which the industrial division produces for use in manufacturing one of its own products. The commercial division is growing rapidly; it is expanding its production and now wants to increase its purchases of part to units per year. The problem is that the industrial division is at full capacity. No new investment in the industrial division has been made for some years because top management sees little future growth in its products, so its capacity is unlikely to increase soon. The commercial division can buy part from Advanced Micro Incorporated or from Admiral Electric, a customer of the industrial division now purchasing units of part The industrial division's sales to Admiral would not be affected by the commercial divisions decision regarding part Industrial Division: Data on part : Price to commercial division $ Variable manufacturing costs Price to outside buyers Data on part : Variable manufacturing costs $ Sales price Other Suppliers of Part : Advance Micro Incorporated, price $ Admiral Electric, price Required: What is FMIs unit cost if the commercial division buys its additional units of part from the industrial division? From FMIs perspective, from which supplier industrial division, Advance Micro Incorporated, or Admiral Electric should the commercial division buy the additional units? If the sale were made internally, what would the correct transfer price be Assume that the industrial divisions sales to Admiral will be canceled if the commercial division does not buy from Admiral. What would be FMIs unit costs of a internal transfer and b purchasing from Admiral in this case? Would the correct transfer price change?
Federated Manufacturing Incorporated FMI produces electronic components in three divisions: industrial, commercial, and consumer products. The commercial products division annually purchases units of part which the industrial division produces for use in manufacturing one of its own products. The commercial division is growing rapidly; it is expanding its production and now wants to increase its purchases of part to units per year. The problem is that the industrial division is at full capacity. No new investment in the industrial division has been made for some years because top management sees little future growth in its products, so its capacity is unlikely to increase soon.
The commercial division can buy part from Advanced Micro Incorporated or from Admiral Electric, a customer of the industrial division now purchasing units of part The industrial division's sales to Admiral would not be affected by the commercial divisions decision regarding part
Industrial Division:
Data on part :
Price to commercial division $
Variable manufacturing costs
Price to outside buyers
Data on part :
Variable manufacturing costs $
Sales price
Other Suppliers of Part :
Advance Micro Incorporated, price $
Admiral Electric, price
Required:
What is FMIs unit cost if the commercial division buys its additional units of part from the industrial division? From FMIs perspective, from which supplier industrial division, Advance Micro Incorporated, or Admiral Electric should the commercial division buy the additional units? If the sale were made internally, what would the correct transfer price be
Assume that the industrial divisions sales to Admiral will be canceled if the commercial division does not buy from Admiral. What would be FMIs unit costs of a internal transfer and b purchasing from Admiral in this case? Would the correct transfer price change?
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