Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Please help with the below question Heisenberg Corporation has a Moldings Division that does molding work of various types. The company's Machine Products Division has

Please help with the below question

Heisenberg Corporation has a Moldings Division that does molding work of various types. The

company's Machine Products Division has asked the Moldings Division to provide it with 20,000 special

moldings each year on a continuing basis. The special moldings would require $10 per unit in variable

production costs. The Machine Products Division has a bid from an outside supplier of $29 per unit for

the moldings.

In order to have time and space to produce the new moldings, the Moldings Division would have to cut

back production of another molding: the Blue4, which it presently is producing. The Blue4 sells for $30

per unit, and requires $12 per unit in variable production costs. Boxing and shipping costs of the Blue4

are $4 per unit. Boxing and shipping costs for the new special molding would be only $1 per unit. The

company is now producing and selling 100,000 units of the Blue4 each year. Production and sales of this

molding would drop by 20% if the new molding is produced.

Required:

1) What is the range of transfer prices within which both the divisions' profits would increase as a

result of agreeing to the transfer of 20,000 moldings per year from the Moldings Division to the

Machine Products Division?

2) Is it in the best interests of Heisenberg Corporation for this transfer to take place? Explain.

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

Understanding Financial Accounting

Authors: Christopher D. Burnley

2nd Canadian Edition

1119406927, 978-1119406921

More Books

Students also viewed these Accounting questions

Question

3. What values would you say are your core values?

Answered: 1 week ago