Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

I sent it two times to chegg and both times wrong, please I really need it to be right Case 11A-7 Transfer Pricing; Divisional Performance

image text in transcribed

I sent it two times to chegg and both times wrong, please I really need it to be right

Case 11A-7 Transfer Pricing; Divisional Performance [L011-5] Weller Industries is a decentralized organization with six divisions. The company's Electrical Division produces a variety of electrical items, including an X52 electrical fitting. The Electrical Division (which is operating at capacity) sells this fitting to its regular customers for $15.40 each; the fitting has a variable manufacturing cost of $8.65. The company's Brake Division has asked the Electrical Division to supply it with a large quantity of X52 fittings for only $9.00 each. The Brake Division, which is operating at 60% of capacity, will put the fitting into a brake unit that it will produce and sell to a large commerclal airline manufacturer. The cost of the brake unit being built by the Brake Division follows: Purchased parts (from outside vendors) Electrical fitting x52 Other variable costs Fixed overhead and administration $37.00 9.00 20.80 10.00 $76.80 Total cost per brake unit Although the $9.00 price for the X52 fitting represents a substantial discount from the regular $15.40 price, the manager of the Brake Division believes the price concession is necessary if his division is to get the contract for the airplane brake units. He has heard through the grapevine" that the airplane manufacturer plans to reject his bid if it Is more than $77.05 per brake unit. Thus, if the Brake Division is forced to pay the regular $15.40 price for the X52 fitting, it will elther not get the contract or it will suffer a substantial loss at a time when it is already operating at only 60% of capacity. The manager of the Brake Division argues that the price concession is imperative to the well-being of both his division and the company as a whole. Weller Industries uses return on Investment (ROI) to measure divislonal performance Required: 1. Assume that you are the manager of the Electrical Division. a. What is the lowest acceptable transfer price for the Electrical Division? b. Would you supply the X52 fitting to the Brake Division for $9.00 each as requested? 2. Calculate the net positive effect on the company's profit per brake unit the Electrical Division to supply the fittings to the Brake Division and if the airplane brakes can be sold for $7705? 3. In principle, within what range would that transfer price lie? (For all requirements, enter your "Financial Disadvantage" amounts as a negative value and round your final answers to 2 decimal places.) Answer is complete but not entirely correct. 1a Lowest acceptable transfer price 1b. 2. Would you supply the X52 fitting to the Brake Division for $9.00 each as requested? Financial advantage (disadvantage) on a per unit basis Highest acceptable transfer price 15.40 Yes 10.25 9.25

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Curriculum Alignment A Facilitators Developing Aligning And Auditing

Authors: Betty E. Steffy-English, Fenwick W. English

1st Edition

0803968485, 978-0803968486

More Books

Students also viewed these Accounting questions

Question

assess the infl uence of national culture on the workplace

Answered: 1 week ago