Garcon Inc. Divisional Income Statements For the Year Ended December 31, 20Y2 Consumer Division 1 Commercial Division Total 2 Sales: 3 $2,073,600,00 $2,073,600.00 4 14,400 units * $144 per unit 21,600 units * $275 per unit Total sales 5,940,000.00 5 $5,940,000.00 $5,940,000.00 $2,073,600.00 $8,013,600.00 6 Expenses 7 Variable: 8 14,400 units * $104 per unit $1,497,600.00 $1,497,600.00 9 21,600 units $1939 per unit $4,168,800.00 4,168,800.00 Instructions $4,168,800.00 4,168,800.00 520,000.00 720,000.00 9 21,600 units * $1939 per unit 10 Fixed 11 Total expenses 12 Income from operations 200,000.00 $1,697,600.00 $376,000.00 $6,386,400.00 $4,688,800.00 $1,251,200.00 $1,627,200.00 *$150 of the $193 per unit represents materials costs, and the remaining S43 per unit represents other variable conversion expenses incurred within the Commercial Division Consumer Division is presently producing 14,400 units out of a total capacity of 17,280 units. Materials used in producing the mmercial Division's product are currently purchased from outside suppliers at a price of $150 per unit. The Consumer Division is Je to produce the materials used by the Commercial Division. Except for the possible transfer of materials between divisions, no anges are expected in sales and expenses. Required: Required: 1. Would the market price of $150 per unit be an appropriate transfer price for Garcon Inc. ? Explain. 2. If the Commercial Division purchases 2,880 units from the Consumer Division, rather than externally, at a negotiated transfer price of $115 per unit, how much would the income from operations of each division and the total company income from operations increase? 3. Prepare condensed divisional income statements for Garcon Inc. based on the data in Requirement 2. If a transfer price of $126 per unit is negotiated, how much would the income from operations of each division and the total company income from operations increase? 5a. What is the range of possible negotiated transfer prices that would be acceptable for Garcon Inc. ? 5b. Assuming that the managers of the two divisions cannot agree on a transfer price, what price would you suggest as the transfer price? 4. Starting Questions X 2. If the Commercial Division purchases 2,880 units from the Consumer Division, rather than externally, at a negotiated transfer price of $115 per unit, how much would the income from operations of each division and the total company income from operations increase ? The Consumer Division's income from operations would increase by The Commercial Division's income from operations would increase by Garcon Inc.'s total income from operations would increase by Divisional Income Statements 3. Prepare condensed divisional income statements for Garcon Inc. based on the data in Requirement 2. Garcon Inc. Divisional Income Statements For the Year Ended December 31, 20Y2 Consumer Division 1 Commercial Division Total 2 Sales: 3 14,400 units 4 2,880 units 5 21,600 units Total sales 1 Expenses: 8 Variable: 9 17,280 units Divisional Income Statements lotal Division Division 2 Sales: 3 14,400 units 4 2,880 units 5 21,600 units Total sales Expenses: 8 Variable: 9 17,280 units 10 2,880 units 18,720 units 11 12 Fixed 13 Total expenses * Incame from operations x Final Questions 4. If a transfer price of $126 per unit is negotiated, how much would the income from operations of each division and the total company income from operations increase ? The Consumer Division's income from operations would increase by $ The Commercial Division's income from operations would increase by Garcon Inc.'s total income from operations would increase by $ 5a. What is the range of possible negotiated transfer prices that would be acceptable for Garcon Inc. ? Any transfer price than the Consumer Division's variable expenses per unit but market price would be acceptable. than the The Commercial Division's income from operations would increase by Garcon Inc.'s total income from operations would increase by $ 5a. What is the range of possible negotiated transfer prices that would be acceptable for Garcon Inc.? than the Any transfer price than the Consumer Division's variable expenses per unit but market price would be acceptable. 5b. Assuming that the managers of the two divisions cannot agree on a transfer price, what price would you suggest as the transfer price
