Transfer Pricing Wiring used by the Appliance Division of Kaufman Manufacturing is currently purchased from outside...

Transfer Pricing

Wiring used by the Appliance Division of Kaufman Manufacturing is currently purchased from outside suppliers at a cost of $25 per unit. However, the same materials are available from the Electronic Division. The Electronic Division has unused capacity and can produce the materials needed by the Appliance Division at a variable cost of $20 per unit.

Assume that a transfer price of $22 has been established and that 150,000 units of materials are transferred, with no reduction in the Electronic Division’s current sales.

a. How much would Kaufman Manufacturing’s total operating income increase?
$

b. How much would the Appliance Division’s operating income increase?
$

c. How much would the Electronic Division’s operating income increase?
$

d. If the negotiated price approach is used, what would be the range of acceptable transfer prices and why?

The transfer prices should be between variable cost and market price when the supplier division has excess capacity in order to give the division managers proper incentives.

Solutions

Expert Solution

ekkarill92 answered 1 year ago

Next > < Previous

Related Solutions

Decision on transfer pricing Materials used by the Instrument Division of XPort Industries are currently purchased...

Decision on transfer pricing Materials used by the Instrument Division of XPort Industries are currently purchased from outside suppliers at a cost of $194 per unit. However, the same materials are available from the Components Division. The Components Division has unused capacity and can produce the materials needed by the Instrument Division at a variable cost of $161 per unit. Assume that a transfer price of $184 has been established and that 45,900 units of materials are transferred, with no...

Decision on Transfer Pricing Materials used by the Instrument Division of Ziegler Inc. are currently purchased...

Decision on Transfer Pricing Materials used by the Instrument Division of Ziegler Inc. are currently purchased from outside suppliers at a cost of $319 per unit. However, the same materials are available from the Components Division. The Components Division has unused capacity and can produce the materials needed by the Instrument Division at a variable cost of $265 per unit. a. If a transfer price of $290 per unit is established and 36,800 units of materials are transferred, with no...

Decision on transfer pricing Materials used by the Instrument Division of XPort Industries are currently purchased...

Decision on transfer pricing Materials used by the Instrument Division of XPort Industries are currently purchased from outside suppliers at a cost of $387 per unit. However, the same materials are available from the Components Division. The Components Division has unused capacity and can produce the materials needed by the Instrument Division at a variable cost of $321 per unit. Assume that a transfer price of $368 has been established and that 43,100 units of materials are transferred, with no...

Decision on Transfer Pricing Materials used by the Instrument Division of XPort Industries are currently purchased...

Decision on Transfer Pricing Materials used by the Instrument Division of XPort Industries are currently purchased from outside suppliers at a cost of $210 per unit. However, the same materials are available from the Components Division. The Components Division has unused capacity and can produce the materials needed by the Instrument Division at a variable cost of $160 per unit. Assume that a transfer price of $190 has been established and that 60,000 units of materials are transferred, with no...

Decision on Transfer Pricing Materials used by the Instrument Division of XPort Industries are currently purchased...

Decision on Transfer Pricing Materials used by the Instrument Division of XPort Industries are currently purchased from outside suppliers at a cost of $342 per unit. However, the same materials are available from the Components Division. The Components Division has unused capacity and can produce the materials needed by the Instrument Division at a variable cost of $284 per unit. a. If a transfer price of $311 per unit is established and 29,900 units of materials are transferred, with no...

Decision on transfer pricing Materials used by the Instrument Division of XPort Industries are currently purchased...

Decision on transfer pricing Materials used by the Instrument Division of XPort Industries are currently purchased from outside suppliers at a cost of $273 per unit. However, the same materials are available from the Components Division. The Components Division has unused capacity and can produce the materials needed by the Instrument Division at a variable cost of $227 per unit. Assume that a transfer price of $259 has been established and that 23,700 units of materials are transferred, with no...

PART 1 The materials used by the Hibiscus Company Division A are currently purchased from outside...

PART 1 The materials used by the Hibiscus Company Division A are currently purchased from outside supplier at $55 per unit. Division B is able to supply Division A with 23,100 units at a variable cost of $52 per unit. The two divisions have recently negotiated a transfer price of $51 per unit for the 23,100 units. By how much will each division's income and the company's total income change as a result of this transfer? Enter an increase as...

Transfer pricing company is a two division firm, consisting of a manufacturing division and a distribution...

Transfer pricing company is a two division firm, consisting of a manufacturing division and a distribution division. Manufacturing division produces a single product, called product X. The cost of producing product X consists of a variable cost of $50 per unit, and a fixed cost of $100 per unit. This fixed cost per unit is calculated assuming that Manufacturing runs at its capacity of 10,000 units. Assume there is an external customer that contracts with Manufacturing to buy up to...

A corporation has two divisions, the Parts Division and the Appliance Division. The Appliance Division currently...

A corporation has two divisions, the Parts Division and the Appliance Division. The Appliance Division currently buys its switches from an outside supplier for $25 each. It needs 4,000 switches a year. The Parts Division makes switches, and has recorded the following information: Parts Division – Outside sale of switches: Price $27 Direct materials $10 Direct labor $ 2 Variable overhead $ 4 Fixed overhead $ 4 The Appliance Division wants to buy the 4,000 switches from the Parts Division....

Transfer Pricing KingXY Ltd is organised on decentralized lines, with each manufacturing division operating as a...

Transfer Pricing KingXY Ltd is organised on decentralized lines, with each manufacturing division operating as a separate profit centre. The manager of a division has full authority to decide on sale of the division’s output to outsiders and to other divisions. Division Y has always purchased its requirements of a component from Division X. But when informed that Division X was increasing its selling price to R300, the manager of Division Y decided to look at outside suppliers. Division Y...

Subjects