Wheely, Inc., has two divisions, A and B, that manufacture expensive bicycles. Division A produces the bicycle frame, and division B assembles the rest of the bloycle onto the frame. There is a market for both the subassembly and the final product. Each division has been designated as a profit contor. The transfer price for the subassembly has been set at the long run average market price. The following data are available for each division: Requirement 1. Should transfers be made to division B if there is no unused capacity in division AP is the market price the correct transfer price? Show your computations. Begin by calculating the gain or loss if transfers are made to division B when there is no unused capacity in division A. Select the formula you will use and enter the amounts (Use parentheses or a minus sign for a loss.) ss) from transfer Data table - Shoul $ 220 Selec 150 price 125 90 Is the Selling price for final product Long-run average selling price for intermediate product Incremental cost per unit for completion in division B Incremental cost per unit in division A The manager of division B has made the following calculation: Seling price for final product Transferred-in cost per unit (market) Incremental cost per unit for completion Contribution (loss) on product S 220 Jes to the intermediate le indefinitely. That is finsferred to division B? At $ Requ marke divisid what 150 125 275 $ (55) Shoul tribution to the company Requ as an Print Done The TPUT O T Computer ute Couto margt UIVISIOITD. Tuse parentheses or a minus Requirement 1. Should transfers be made to division B if there is no unused capacity in division A? Is the market price the correct transfer price? Show your computations. Begin by calculating the gain or loss if transfers are made to division B when there is no unused capacity in division A Select the formula you will use and enter the amounts. (Use parentheses or a minus sign for a loss.) Gain (loss) from transfer Should transfers be made to division B if there is no unused capacity in division A? Select the formula you will use to calculate the correct transfer price Minimum transfer price is the market price the correct transfer price? Requirement 2. Assume that division A's maximum capacity for this product is 1,500 units per month and sales to the intermediate market are now 1,000 units. Assume that for a variety of reasons, division A will maintain the $150 selling price indefinitely. That is, division A is not considering lowering the price to outsiders even if idle capacity exists. Should 500 units be transferred to division B? At what transfer price? Should 500 units be transferred to division B? At what transfer price? per unit. Requirement 3. Suppose division A quoted a transfer price of $95 for up to 500 units. What would be the contribution to the company as a whole if a transfer were made? As manager of division B, would you be inclined to buy at $95? Explain. The contribution to the company as a whole i a transfer were made would be Complete the table below using the transfer price of $95 to compute the contribution margin to division B. (Use parentheses or a minus sign for a loss. For amounts with a $0 balance, make sure to enter "o" in the appropriate cell.) Selling price for final product assembles the rest of the bicycle onto the frame. There is a market for both the subassembly and the final product. Each division has CIVISION AIs nor consioenng lowering the price to outsiders even de capacity exists. Snoua bu units de transterred to aiISION STAT what transfer price? Should 500 units be transferred to division B? At what transfer price? Requirement 3. Suppose division A quoted a transfer price of $95 for up to 500 units. What would be the contribution to the company as a whole if a transfer were made? As manager of division B, would you be inclined to buy at $95? Explain. The contribution to the company as a whole if a transfer were made would be per unit Complete the table below using the transfer price of $95 to compute the contribution margin to division B. (Use parentheses or a minus sign for a loss. For amounts with a $0 balance, make sure to enter "o" in the appropriate cell) Selling price for final product Transferred-in cost per unit (market) Incremental cost per unit for completion Contribution margin (loss) on product As manager of division B, would you be inclined to buy at $95? Requirement 4. Suppose the manager of division A has the option of (a) cutting the external price to $145, with the certainty that sales will rise to 1,500 units, or (b) maintaining the external price of $150 for the 1,000 units and transferring the 500 units to division B at a price that would produce the same operating income for division A. What transfer price would produce the same operating income for division A? that price consistent with that recommended by the general guideline so that the resulting decision would be desirable for the company as a whole? Select the formula to calculate the minimum transfer price, then calculate the minimum transfer price. Minimum transfer price The price consistent with the general guidelines based on
