Question

In: Accounting

The Trailer division of Baxter Bicycles makes bike trailers that attach to bicycles and can carry...

The Trailer division of Baxter Bicycles makes bike trailers that attach to bicycles and can carry children or cargo. The trailers have a retail price of $105 each. Each trailer incurs $33 of variable manufacturing costs. The Trailer division has capacity for 24,000 trailers per year and incurs fixed costs of $410,000 per year.

Required:
1. Assume the Assembly division of Baxter Bicycles wants to buy 5,100 trailers per year from the Trailer division. If the Trailer division can sell all of the trailers it manufactures to outside customers, what price should be used on transfers between Baxter Bicycles's divisions?
2. Assume the Trailer division currently only sells 10,000 Trailers to outside customers, and the Assembly division wants to buy 5,100 trailers per year from the Trailer division. What is the range of acceptable prices that could be used on transfers between Baxter Bicycles's divisions?

1. Transfer price per trailer
2. Transfer price per trailer will be at least but not more than

Solutions

Expert Solution

Req 1: Transfer price per trailer 105
Reason: Transfer price will be variable cost i.e. $33 + contribution lost per unit i.e. $72 because each unit can be sold by trailer division to an outside customer. So any price below charging to customer will generate a loss for trailer division and to Baxter too.
Req 2: Transfer price per trailer will be at least $33 but not more than $105
Reason: Because due to excess capacity trailer division will not loose any contribution if it transfer 5100 units to another division. However it could not be more than the market price that is $105.
Note: Fixed cost of $410000 will continue to incur whether trailer division transfer to own division or sold outside customer. It is indifferent in both the situation hence ignored in decision making and transfer price calculation

Related Solutions

The trailer division of Baxter Bicycles makes bike trailers that attach to bicycles and can carry...
The trailer division of Baxter Bicycles makes bike trailers that attach to bicycles and can carry children or cargo. The trailers have a retail price of $99 each. Each trailer incurs $30 of variable manufacturing costs. The trailer division has capacity for 22,000 trailers per year and incurs fixed costs of $500,000 per year.     Required: 1. Assume the assembly division of Baxter Bicycles wants to buy 5,700 trailers per year from the trailer division. If the trailer division can...
The Trailer division of Baxter Bicycles makes bike trailers that attach to bicycles and can carry...
The Trailer division of Baxter Bicycles makes bike trailers that attach to bicycles and can carry children or cargo. The trailers have a retail price of $100 each. Each trailer incurs $37 of variable manufacturing costs. The Trailer division has capacity for 26,000 trailers per year and incurs fixed costs of $580,000 per year. Required: 1. Assume the Assembly division of Baxter Bicycles wants to buy 5,700 trailers per year from the Trailer division. If the Trailer division can sell...
ABC Cycle makes bicycles for people of all ages. The frames division makes and paints the...
ABC Cycle makes bicycles for people of all ages. The frames division makes and paints the frames and supplies them to the assembly division where the bicycles are assembled. ABC Cycle is a successful and profitable corporation that attributes much of its success to its decentralized operating style. Each division manager is compensated on the basis of division operating income. The assembly division currently acquires all its frames from the frames division. The assembly division manager could purchase similar frames...
ABC Cycle makes bicycles for people of all ages. The frames division makes and paints the...
ABC Cycle makes bicycles for people of all ages. The frames division makes and paints the frames and supplies them to the assembly division where the bicycles are assembled. ABC Cycle is a successful and profitable corporation that attributes much of its success to its decentralized operating style. Each division manager is compensated on the basis of division operating income. The assembly division currently acquires all its frames from the frames division. The assembly division manager could purchase similar frames...
Bicycles arrive at a bike shop in boxes. Before they can be​sold, they must be​ unpacked,...
Bicycles arrive at a bike shop in boxes. Before they can be​sold, they must be​ unpacked, assembled, and tuned​(lubricated, adjusted,​ etc.). Based on past​ experience, the shop manager creates a model of how long this may take based on the assumptions that the times for each setup phase are​ independent, each phase follows a Normal​model, and the means and standard deviations of the times in minutes are as shown in the table. Complete parts​ a) and​ b). Phase Mean SD...
Goal-congruence, taxes, different market conditions. TECA Halifax makes kids’ bicycles. The frames division makes and paints...
Goal-congruence, taxes, different market conditions. TECA Halifax makes kids’ bicycles. The frames division makes and paints the frames and supplies them to the assembly division where the bicycles are assembled. TECA is a successful and profitable corporation that attributes much of its success to its decen- tralized operating style. Each division manager is compensated on the basis of division operating income. The assembly division currently acquires all its frames from the frames division. The assembly division manager could purchase similar...
Sturdy Bike Company makes the frames used to build its bicycles. During year 2, Sturdy made...
Sturdy Bike Company makes the frames used to build its bicycles. During year 2, Sturdy made 20,000 frames; the costs incurred follow. Unit-level materials costs (20,000 units × $35.00) $ 700,000 Unit-level labor costs (20,000 units × $42.50) 850,000 Unit-level overhead costs (20,000 × $10.00) 200,000 Depreciation on manufacturing equipment 120,000 Bike frame production supervisor’s salary 70,000 Inventory holding costs 290,000 Allocated portion of facility-level costs 500,000 Total costs $ 2,730,000 Sturdy has an opportunity to purchase frames for $92.50...
Baird Bike Company makes the frames used to build its bicycles. During 2018, Baird made 23,000...
Baird Bike Company makes the frames used to build its bicycles. During 2018, Baird made 23,000 frames; the costs incurred follow: Unit-level materials costs (23,000 units × $46) $ 1,058,000 Unit-level labor costs (23,000 units × $51) 1,173,000 Unit-level overhead costs (23,000 × $14) 322,000 Depreciation on manufacturing equipment 86,000 Bike frame production supervisor’s salary 69,500 Inventory holding costs 270,000 Allocated portion of facility-level costs 530,000 Total costs $ 3,508,500 Baird has an opportunity to purchase frames for $109 each....
Finch Bike Company makes the frames used to build its bicycles. During 2018, Finch made 25,000...
Finch Bike Company makes the frames used to build its bicycles. During 2018, Finch made 25,000 frames; the costs incurred follow: Unit-level materials costs (25,000 units × $49) $ 1,225,000 Unit-level labor costs (25,000 units × $52) 1,300,000 Unit-level overhead costs (25,000 × $14) 350,000 Depreciation on manufacturing equipment 95,000 Bike frame production supervisor’s salary 55,500 Inventory holding costs 300,000 Allocated portion of facility-level costs 580,000 Total costs $ 3,905,500 Finch has an opportunity to purchase frames for $113 each....
Walton Bike Company makes the frames used to build its bicycles. During 2018, Walton made 21,000...
Walton Bike Company makes the frames used to build its bicycles. During 2018, Walton made 21,000 frames; the costs incurred follow: Unit-level materials costs (21,000 units × $49) $ 1,029,000 Unit-level labor costs (21,000 units × $56) 1,176,000 Unit-level overhead costs (21,000 × $11) 231,000 Depreciation on manufacturing equipment 90,000 Bike frame production supervisor’s salary 93,400 Inventory holding costs 280,000 Allocated portion of facility-level costs 590,000 Total costs $ 3,489,400 Walton has an opportunity to purchase frames for $120 each....
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT