In: Accounting
Comm Devices (CD) is a division of Worldwide Communications,
Inc. CD produces restaurant pagers and other...
Comm Devices (CD) is a division of Worldwide Communications,
Inc. CD produces restaurant pagers and other personal communication
devices. These devices are sold to other Worldwide divisions, as
well as to other communication companies. CD was recently
approached by the manager of the Personal Communications Division
regarding a request to make a special emergency-response pager
designed to receive signals from anywhere in the world. The
Personal Communications Division has requested that CD produce
11,400 units of this special pager. The following facts are
available regarding the Comm Devices Division.
Selling price of standard pager |
|
$97 |
Variable cost of standard pager |
|
$55 |
Additional variable cost of special
pager |
|
$40 |
For each of the following independent situations, calculate the
minimum transfer price, and determine whether the Personal
Communications Division should accept or reject the offer.
(a)
The Personal Communications Division has offered to pay the CD
Division $111 per pager. The CD Division has no available capacity.
The CD Division would have to forgo sales of 9,120 pagers to
existing customers in order to meet the request of the Personal
Communications Division. (Note: The number of special
pagers to be produced does not equal the number of existing pagers
that would be forgone.) (Round answer to 2 decimal
places, e.g. 125.36.)
Personal Communications Division
reject/accept the offer. |
(b)
The Personal Communications Division has offered to pay the CD
Division $150 per pager. The CD Division has no available capacity.
The CD Division would have to forgo sales of 15,200 pagers to
existing customers in order to meet the request of the Personal
Communications Division. (Note: The number of special
pagers to be produced does not equal the number of existing pagers
that would be forgone.)
Personal Communications Division
should accept/reject the offer. |
(c)
The Personal Communications Division has offered to pay the CD
Division $106 per pager. The CD Division has available
capacity.
Personal Communications Division
should accept/reject the offer. |