Garcon Inc. Divisional Income Statements The Consumer Division is presently producing 14,400 units out of a total capacity of 17,280 units. Materials used in producing the Commercie Division's product are currently purchased from outside suppliers at a price of $150 per unit. The Consumer Division is able to produce the materials used by the Commercial Division. Except for the possible transfer of materials between divisions, no changes are expected in sales and expenses. 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. 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? 5a. What is the range of possible negotiated transfer prices that would be acceptable for Garcon Inc? 5b. Assuming that the managers of the fwo divisions cannot agree on a transfer price, what price would you suggest as the transfer price? "\$ 150 of the $103 per unit represents materials costs, and the remaining $43 per unit represents other variable conversion expenses incurred within the Commerclal Division. 1. Would the market price of $150 per unit be an appropriate transfer price for Garcon inc.? Explain. When exists in the supplying division (the Consumer Division), the use of the market price approach may not lead to the maximization of total company income. 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 fotal 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 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 possiblo negotiated transfer prices that would be acceptable for Garcon inc.? Any transter price than the Consumer Division's variable expenses per unit but than the 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
