McFarlane Company has two divisions, Division C and Division D. Division C manufactures Part C82 and sells it to Division D, and also sells the same part to the outside market for $73 per unit. Division C has capacity to make
1,200,000 units of C82 per year. The division's fixed costs are $ 6,500,000 per year and its variable costs per unit are as follows:
Part C82 is an essential component for Division D's only product; the division sells 550,000 units per year at a price of $170 per unit. Division D's fixed costs are $2,500,000
per year and its variable costs per unit, excluding the cost of Part C82, are as follows :
Requirement
Suppose Division C's demand for C82 from the outside market is currently 500,000 units per year. By how much will McFarlane's income decrease if Division D purchases its desired 550,000 units of C82 at $73
per unit from the market rather than from Division C? What transfer price(s) would you suggest to induce both divisions to want Division D to purchase from Division C instead of from the market?
McFarlane Company has two divisions, Division C and Division D. Division C manufactures Part C82 and sells it to to sells the same part to the outside market for $73 per unit. Division C has capacity to make apacity to make 1200,000 units of C82 per year. The division's fixed costs are $6,500,000 per year and its variable costs per unit are as follows: Part C82 is an essential component for Division D's only product, the division sells 550.000 units per year at a price of $170 per unit. Division D's fixed costs are $2.500.000 per year and its variable costs per unit, excluding price of $170 per unit. Division D's fixed costs are $2. the cost of Part C82, are as follows (Click the icon to view the data for Division D.) (Click the icon to view the data for Division C.) Read the requirement. i Division C - X per unit from the will - Division D X i Requirement - X o S inst Direct materials $ Direct materials Direct labor Variable overhead 18 28 12 Direct labor Variable overhead Requirement Suppose Division C's demand for C82 from the outside market is currently 500.000 units per year. By how much will McFarlane's income decrease if Division D purchases its desired 550.000 units of C82 at $73 per unit from the market rather than from Division C? What transfer price(s) would you suggest to induce both divisions to want Division D to purchase from Division C instead of from the market? Print Done Print Done Print Done McFarlane Company has two divisions, Division C and Division D. Division C manufactures Part C82 and sells it to Division D. and also sells the same part to the outside market for $73 per unit. Division C has capacity to make 1,200.000 units of C82 per year. The division's fixed costs are $6.500.000 per year and its variable costs per unit are as follows: Part C82 is an essential component for Division D's only product the division sells 550,000 units per year at a price of $170 per unit. Division D's fixed costs are $2.500,000 per year and its variable costs per unit, excluding the cost of Part C82, are as follows: E(Click the icon to view the data for Division D.) (Click the icon to view the data for Division C.) Read the requirement. Suppose Division C's demand for C82 from the outside market is currently 500,000 units per year. By how much will McFarlane's income decrease if Division D purchases its desired 550,000 units of C82 at $73 per unit from the market rather than from Division C? If Division D purchases its desired 550,000 units of C82 at $73 per unit from the market rather than from Division C, McFarlane's income will decrease by $ What transfer price(s) would you suggest to induce both divisions to want Division to purchase from Division instead of from the market? To induce an internal transfer, the transfer price should be greater than Division C's variable costs of $58 and less than Division D's cost to purchase C82 from the market of $73
