Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Vaughn Inc. has two divisions. Division A makes and sells student desks. Division B manufactures and sells reading lamps. Each desk has a reading lamp

Vaughn Inc. has two divisions. Division A makes and sells student desks. Division B manufactures and sells reading lamps. Each desk has a reading lamp as one of its components. Division A can purchase reading lamps at a cost of $ 9 from an outside vendor. Division A needs 10,600 lamps for the coming year. Division B has the capacity to manufacture 51,600 lamps annually. Sales to outside customers are estimated at 41,000 lamps for the next year. Reading lamps are sold at $ 11 each. Variable costs are $ 7 per lamp and include $ 1 of variable sales costs that are not incurred if lamps are sold internally to Division A. The total amount of fixed costs for Division B is $ 76,600. Consider the following independent situations.

(a)

What should be the minimum transfer price accepted by Division B for the 10,600 lamps and the maximum transfer price paid by Division A?

Minimum transfer price accepted by Division B $ per unit
Maximum transfer price paid by Division A $ per unit

(b)

Suppose Division B could use the excess capacity to produce and sell externally 15,900 units of a new product at a price of $ 7 per unit. The variable cost for this new product is $ 5 per unit. What should be the minimum transfer price accepted by Division B for the 10,600 lamps and the maximum transfer price paid by Division A?

Minimum transfer price accepted by Division B $ per unit
Maximum transfer price paid by Division A $ per unit

(c)

If Division A needs 16,960 lamps instead of 10,600 during the next year, what should be the minimum transfer price accepted by Division B and the maximum transfer price paid by Division A? (Round answers to 2 decimal places, e.g. 10.50.)

Minimum transfer price accepted by Division B $ per unit
Maximum transfer price paid by Division A $ per unit

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

Cost Accounting For Managerial Planning Decision Making And Control

Authors: Woody Liao, Andrew Schiff, Stacy Kline

6th Edition

1516551702, 9781516551705

More Books

Students also viewed these Accounting questions

Question

3. If possible, break the presentation into clear steps or stages.

Answered: 1 week ago