Transfer Pricing Exoplex Industries Inc. is a diversified aerospace company, including two operating divisions, Semiconductors and Navigational Systems, Condensed divisional income statements, which involve no intracompany transfers and include a breakdown of expenses into variable and fixed components, are as follows: Exoplex Industries Inc. Divisional Income Statements For the Year Ended December 31, 2048 Semiconductors Division Navigational Systems Division Total Sales: $887,040 $2,168,250 $887,040 2,168,250 $3,055,290 $887,040 $2,168,250 2,240 units X $396 per unit 3,675 units X $590 per unit Total sales Expenses: Variable: 2,240 units * $232 per unit 3,675 units * $472 per unit $519,680 $519,680 1,734,600 545,000 $2,799,280 Fixed $1,734,600 325,000 $2,059,600 220,000 Total expenses $739,680 Total expenses $739,680 $2,059,600 $2,799,280 Income from operations $147,360 $108,650 $256,010 *$432 of the $472 per unit represents materials costs, and the remaining $40 per unit represents other variable conversion expenses incurred within the Navigational Systems Division The Semiconductors Division is presently producing 2,240 units out of a total capacity of 2,820 units. Materials used in producing the Navigational Systems Division's product are currently purchased from outside suppliers at a price of $432 per unit. The Semiconductors Division is able to produce the components used by the Navigational Systems Division. Except for the posible transfer of materials between divisions, no changes are expected in sales and expenses. Required: 1. Would the market price of $432 per unit be an appropriate transfer price for Exoplex Industries Inc.? Yes X 2. If the Navigational Systems Division purchased 580 units from the Semiconductors Division, rather than externally, at a negotiated transfer price of $310 per unit, how much would the income from operations of each division and total company Income from operations increase? The Semiconductors Division's income from operations would increase by 179,800 X The Navigational Systems Division's income from operations would increase by 20,760 The Semiconductors Division's income from operations would increase by $ 179,800X The Navigational Systems Division's income from operations would increase by 70,760 Exoplex Industries Inc.'s total income from operations would increase by 250,560 X 3. Prepare condensed divisional Income statements for Exoplex Industries Inc. based on the data in part (2) Exoplex Industries Inc. Divisional Income Statements For the Year Ended December 31, 2018 Semiconductors Navigational Systems Total Sales: 2,240 units 187,040 887,040 580 units 179,800 179,800 3,675 units 2,168,250 2,168,250 Total sales 1,066,840 2,168,250 3,235,090 Expenses: Variable: 2,820 units 519,680 x 519,680 x 580 units 203,000 203,000 3,095 units 1,460,840 1,460,840 Fixed 220,000 325,000 545,000 Total expenses 739,600 X 1,980,040 2,720,520 X Income from operations 327,160 x 179,410 506,750 x 4. If a transfer price of $340 per unit is negotiated, how much would the income from operations of each division and tota company income from operations increase? The Semiconductors Division's income from operations would increase by $ 340 x The Navigational Systems Division's income from operations would increase by 197,200 x Exoplex Industries Inc.'s total income from operations would increase by 53,360 x 5a. What is the range of possible negotiated transfer prices that would be acceptable for Exoplex Industries Inc.? Any transfer price less than the Semiconductors Division's variable expenses per unit but greater X than the market price would be acceptable. 5b. Assuming that the managers of the two divisions cannot agree on a transfer price, what price would you suggest as the transfer price? 250,560 X
