Required information

Problem $19-50($Algo$)$ Transfer Pricing; Strategy $[$LO $19-4]$

$[$The following information applies to the questions displayed below.$]$

Federated Manufacturing Incorporated $($FMI$)$ produces electronic components in three divisions: industrial, commercial,

and consumer products. The commercial products division annually purchases $13,800$ units of part $23-6711,$ which the

industrial division produces for use in manufacturing one of its own products. The commercial division is growing rapidly; it

is expanding its production and now wants to increase its purchases of part $23-6711$ to $18,800$ units per year. The problem

is that the industrial division is at full capacity. No new investment in the industrial division has been made for some years

because top management sees little future growth in its products, so its capacity is unlikely to increase soon.

The commercial division can buy part $23-6711$ from Advanced Micro Incorporated or from Admiral Electric, a customer of

the industrial division now purchasing $840$ units of part $88-461.$ The industrial division's sales to Admiral would not be

affected by the commercial division's decision regarding part $23-6711.$

Part $1($Algo$)$

Required:

What is FMI's unit cost if the commercial division buys its additional $5,000$ units of part $23-6711$ from the industrial division? From

FMI's perspective, from which supplier $($industrial division, Advance Micro Incorporated, or Admiral Electric$)$ should the commercial

division buy the additional units? If the sale were made internally, what would the correct transfer price be$?$

Assume that the industrial division's sales to Admiral will be canceled if the commercial division does not buy from Admiral. What

would be FMI's unit costs of $($a$)$ internal transfer and $($b$)$ purchasing from Admiral in this case? Would the correct transfer price change?

Complete this question by entering your answers in the tabs below.

What is FMI's unit cost if the commercial division buys its additional $5,000$ units of part $23-6711$ from the industrial division?

From FMI's perspective, from which supplier $($industrial division, Advance Micro Incorporated, or Admiral Electric$)$ should the

commercial division buy the additional units? If the sale were made internally, what would the correct transfer price be$?$