Problem 1 (WHITECOTTON)

Avery Company has two divisions, Polk and Bishop. Polk produces an item that Bishop could use in its production. Bishop currently is purchasing 25,000 units from an outside supplier for P24 per unit. Polk is currently operating at less than its full capacity of 600,000 units and has variable costs of P12 per unit. The full cost to manufacture the unit is P18. Polk currently sells 450,000 units at a selling price of P25.50 per unit.

a. What will be the effect on Avery Company's operating profit if the transfer is made internally?

b. What is the minimum transfer price from Polk's perspective?

c. What is the maximum transfer price from Bishop's perspective?

Problem 2 (WHITECOTTON)

Sandy Company has two divisions, Huron and Cortez. Huron produces an item that Cortez could use in its production. Cortez currently is purchasing 50,000 units from an outside supplier for P24 per unit. Huron is currently operating at full capacity of 600,000 units and has variable costs of P13.50 per unit. The full cost to manufacture the unit is P19.50. Huron currently sells 600,000 units at a selling price of P25.50 per unit.

a. What will be the effect on Sandy Company's operating profit if the transfer is made internally?

b. What is the minimum transfer price from Huron's perspective?

c. What is the maximum transfer price from Cortez' perspective?

Problem 3 (WHITECOTTON)

Washington Company has two divisions, Jefferson and Adams. Jefferson produces an item that Adams could use in its production. Adams currently is purchasing 100,000 units from an outside supplier for P78.40 per unit. Jefferson is currently operating at full capacity of 900,000 units and has variable costs of P46.40 per unit. The full cost to manufacture the unit is P59.20. Jefferson currently sells 900,000 units at a selling price of P86.40 per unit.

a. What will be the effect on Washington Company's operating profit if the transfer is made internally?

b. What will be the change in profits for Jefferson if the transfer price is P67.20 per unit?

c. What will be the change in profits for Adams if the transfer price is P67.20 per unit?

Problem 4 (WHITECOTTON)

Sugar Company has two divisions, Lenox and Berkshire. Lenox produces an item that Berkshire could use in its production. Berkshire currently is purchasing 100,000 units from an outside supplier for P43 per unit. Lenox is currently operating at full capacity of 750,000 units and has variable costs of P28 per unit. The full cost to manufacture the unit is P35. Lenox currently sells 750,000 units at a selling price of P44 per unit.

a. What will be the effect on Sugar Company's operating profit if the transfer is made internally?

b. What will be the change in profits for Lenox if the transfer price is P40 per unit?

c. What will be the change in profits for Berkshire if the transfer price is P40 per unit?