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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 140 Incremental cost per unit in Division A 110 The manager of Division B has made the following calculation: Selling price for final product 310 Transferred-in cost per unit (market) $ 230 Incremental cost per unit for completion 140 370 Contribution (loss) on product (60)1. Suppose the manager of Division A has the option of (a) cutting the external price to $225, with the certainty that sales will rise to 1,600 units or (b) maintaining the external price of $230 for the 1,200 units and transferring the 400 units to Division B at a price that would produce the same operating income for Division A. What transfer price would produce the same operating income for Division A? Is that price consistent with that recommended by the general guideline in the chapter so that the resulting decision would be desirable for the company as a whole? 2. Suppose that if the selling price for the intermediate product were dropped to $225, sales to external parties could be increased to 1,300 units. Division B wants to acquire as many as 400 units if the transfer price is acceptable. For simplicity, assume that there is no external market for the final 300 units of Division A's capacity. a. Using the general guideline, what is (are) the minimum transfer price(s) that should lead to the correct economic decision? Ignore performance-evaluation considerations. b. Compare the total contributions under the alternatives to show why the transfer price(s) recommended lead (s) to the optimal economic decision.Chic Cycle, 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. Assume that Division A's maximum capacity for this product is 1,600 units per month and sales to the intermediate market are now 1,200 units. The data available for each division are in the accompanying table. (Click the icon to view the division data.) Required Requirement 1. Suppose the manager of Division A has the option of (a) cutting the external price to $225, with the certainty that sales will rise to 1,600 units or (b) maintaining the external price of $230 for the 1,200 units and transferring the 400 units to Division B at a price that would produce the same operating income for Division A. What transfer price would produce the same operating income for Division A? Is that price consistent with that recommended by the general guideline in the chapter so that the resulting decision would be desirable for the company as a whole? Begin by calculating the contribution difference if transfers are made to Division B when there is no unused capacity in Division A, under scenario (a) and (b). Select the formula you will use and enter the amounts. (Round your answers to the nearest whole dollar. Use parentheses or a minus sign for a negative contribution difference.) Contribution difference between (a) and (b) Select the formula you will use to calculate the correct transfer price. (Round your answers to the nearest whole dollar.) Minimum Transfer Price Requirement 2a. Suppose that if the selling price for the intermediate product were dropped to $225, sales to external parties could be increased to 1,300 units. Division B wants to acquire as many as 400 units if the transfer price is acceptable. For simplicity, assume that there is no external market for the final 300 units of Division A's capacity. Using the general guideline, what is (are) the minimum transfer price(s) that should lead to the correct economic decision? Ignore performance-evaluation considerations. Choose the correct answer below.O A. 400 units should be transferred to Division B at a price between $110 and $310. O B. 400 units should be transferred to Division B at a price of $284. O C. 400 units should be transferred to Division B at a price of $140. O D. 400 units should be transferred to Division B at a price between $110 and $170. O E. 400 units should not be transferred to Division B. Requirement 2b. Compare the total contributions under the alternatives to show why the transfer price(s) recommended lead(s) to the optimal economic decision. (Enter positive amounts only.) (a) Total contribution to sell 1,300 outside the company and transfer 300 to Division B (b) Total contribution to sell 1,200 outside the company and transfer 400 to Division B Choos Total contribution difference in favour of option (a) estion. Total contribution difference in favour of option (b)Contribution difference = between (a) and (b) Contribution alternative (a) Contribution alternative (b) the correct transfer price. (Round your answers to the nearest whole dollar.) Incremental cost Minimum Transfer Price Incremental revenue Selling price for final product Selling price for intermediate product g price for the intermediate product were dropped to $225, sales to external parties could be e is no external market for the final 300 units of Division A's capacity. Using the general gui performance-evaluation considerations.Contribution difference between (a) and (b) Select the formula you will use to calculate the correct transfer price. (Round your answers to the nearest whole dollar.) Minimum Transfer Price Incremental cost per unit Market price per unit e selling price for the intermediate product were dropped to $225, sales to external parties could be incre hat there is no external market for the final 300 units of Division A's capacity. Using the general guideline | Opportunity cost per unit ons. Choose the correct answer below
