Question
PPLY THE CONCEPTS: Determining benefits of negotiated transfer price Assume that Selling Division and Buying Division are both owned by Overall Corporation. Selling Division sells
PPLY THE CONCEPTS: Determining benefits of negotiated transfer price
Assume that Selling Division and Buying Division are both owned by Overall Corporation. Selling Division sells a product that is used by Buying Division and outside customers. Selling Division has 35,000 units of excess capacity. Selling Division currently sells the product for $30 per unit and Buying Division currently buys 35,000 units of the product from an outside source for $30 per unit. Variable costs of the product are $6, of which $1.5 is the cost of selling the product to an outside customer.
Using Selling price less avoidable costs as the minimum price, fill in the following formula for the desired transfer price: $ < transfer price < $.
Using Variable costs as the minimum price, fill in the following formula for the desired transfer price: $ < transfer price < $.
Assume there are no avoidable costs with an internal sale (variable costs equal $6) and that Buying Division buys 35,000 units from Selling Division. Complete the table for each transfer price:
Transfer Price | Transfer Price | |
$25 | $13 | |
Increase in net income of Selling Division | $___________ | $_________ |
Increase in net income of Buying Division | $___________ | $_________ |
Increase in net income of Overall Corporation | $___________ | $_________ |
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