Question
In: Accounting
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
ekkarill92 answered 2 years agoRelated Solutions
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