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Selling price for final product 310 Long-run average selling price for intermediate product 230 Incremental cost per unit for completion in Division B 165 Incremental cost per unit in Division A 105 The manager of Division B has made the following calculation: Selling price for final product 320 Transferred-in cost per unit (market) 230 Incremental cost per unit for completion 165 395 Contribution (loss) on product (75)1. Should transfers be made to Division B if there is no unused capacity in Division A? Is the market price the correct transfer price? Show your computations. 2. Assume that Division A's maximum capacity for this product is 1,200 units per month and sales to the intermediate market are now 1,080 units. Should 120 units be transferred to Division B? At what transfer price? Assume that for a variety of reasons, Division A will maintain the $230 selling price indefinitely. That is, Division A is not considering lowering the price to outsiders even if idle capacity exists. 3. Suppose Division A quoted a transfer price of $155 for up to 200 units. What would be the contribution to the company as a whole if a transfer were made? As manager of Division B, would you be inclined to buy at $155? Explain.Hot Rod, Inc., has two divisions, A and B, which manufacture expensive bicycles. Division A produces the bicycle frame, and Division B assembles the rest of the bicycle onto the frame. There is a market for both the subassembly and the final product. Each division has been designated as a profit centre. The transfer price for the subassembly has been set at the long-run average market price. The following data are available for each division: (Click to view the data.) Required Requirement 1. Should transfers be made to Division B if there is no unused capacity in Division A? Is the market price the correct transfer price? Show your computations. Begin by calculating the gain or loss if transfers are made to Division B when there is no unused capacity in Division A. Select the formula you will use and enter the amounts. (Use parentheses or a minus sign for a loss.) = Gain (loss) from transfer Should transfers be made to Division B if there is no unused capacity in Division A? Transfers be made because the incremental revenues are the incremental costs. Select the formula you will use to calculate the correct transfer price. = Minimum Transfer Price Is the market price the correct transfer price? because the market price is the minimum transfer price. Requirement 2. Assume that Division A's maximum capacity for this product is 1,200 units per month and sales to the intermediate market are now 1,080 units. Assume that for a variety of reasons, Division A will maintain the $230 selling price indefinitely. That is, Division A is not considering lowering the price to outsiders even if idle capacity exists. Should 120 units be transferred to Division B? At what transfer price?O A. Yes, 120 units should be transferred to Division B at a price between $105 and $310. O B. Yes, 120 units should be transferred to Division B at a price of $230. O C. Yes, 120 units should be transferred to Division B at a price of $165. O D. Yes, 120 units should be transferred to Division B at a price between $105 and $145. O E. No, 120 units should not be transferred to Division B. Requirement 3. Suppose Division A quoted a transfer price of $155 for up to 200 units. What would be the contribution to the company as a whole if a transfer were made? As manager of Division B, would you be inclined to buy at $155? Explain. The contribution to the company as a whole if a transfer were made would be $ per unit. Complete the table below using the transfer price of $155 to compute the contribution margin to Division B. (Use parentheses or a minus sign for a loss. If an amount is zero, enter "0".) Selling price for final product Transferred-in cost per unit (market) Incremental cost per unit for completion Contribution margin (loss) on product As manager of Division B, would you be inclined to buy at $155?O A. Yes, they are making a profit and therefore, this will benefit their division. O B. No, they will have a loss and the division will not accept operating at a loss. O C. No, the division would not make a large enough profit to make the purchase worthwhile. O D. Yes, even if they are not making the desired profit, it will benefit the company as a whole.Requirement 1. Should transfers be made to Division B if there is no unused capacity in Division A? Is the market price the correct transfer price? Show your computations. Begin by calculating the gain or loss if transfers are made to Division B when there is no unused capacity in Division A. Select the formula you will use and enter the amounts. (Use parentheses or a minus sign for a loss.) Gain (loss) from transfer Incremental cost Incremental revenue ere is no unused capacity in Division A? Selling price for final product e incremental revenues are the incremental costs. Selling price for intermediate product VUIVUL ITV IVETUIU you WILL WE IV vuruILLY the correct transfer price. = Minimum Transfer PriceRequirement 1. Should transfers be made to Division B if there is no unused capacity in Division A? Is the market price the correct transfer price? Show your computations. Begin by calculating the gain or loss if transfers are made to Division B when there is no unused capacity in Division A. Select the formula you will use and enter the amounts. (Use parentheses or a minus sign for a loss.) Gain (loss) from transfer Should transfers be made to Division B if there is no unused capacity in Division A? Transfers be made because the incremental revenues are the incremental costs. Select the formula you will use to calculate the correct transfer price. = Minimum Transfer Price Incremental cost per unit Market price per unit er price? Opportunity cost per unit the minimum transfer price
