Question

In: Accounting

34. Altoona Corporation has two divisions, Hinges and Doors, which are both organized as profit centers;...

34. Altoona Corporation has two divisions, Hinges and Doors, which are both organized as profit centers; the Hinge Division produces and sells hinges to the Door Division and to outside customers. The Hinge Division has total costs of $31, $20 of which are variable. The Hinge Division is operating significantly below capacity and sells the hinges for $46.
The Door Division has received an offer from an outsider vendor to supply all the hinges it needs (26,000 hinges) at a cost of $41. The manager of the Door Division is considering the offer but wants to approach the Hinge Division first.

What is the minimum transfer price from the Hinge Division to the Door Division?

$41.

$20.

$46.

$31.

35. Martin Company currently manufactures all component parts used in the manufacture of various hand tools. The Extruding Division produces a steel handle used in three different tools. The budget for these handles is 121,000 units with the following unit cost.


Direct material	$	0.62
Direct labor		0.41
Variable overhead		0.13
Fixed overhead		0.21
Total unit cost	$	1.37

Polishing Division purchases 21,000 handles from the Extruding Division and completes the hand tools. An outside supplier, Venture Steel, has offered to supply 21,000 units of the handle to Polishing Division for $1.33 per unit. The Extruding Division currently has idle capacity that cannot be used.

If Martin would like to develop a range of transfer prices, what would be the maximum transfer price that Polishing would be willing to pay?

$1.37.

$1.03.

$1.16.

$1.33.

36. Part 43X costs the Southern Division of Norris Corporation $35 to make - direct materials are $15, direct labor is $6, variable manufacturing overhead is $11, and fixed manufacturing overhead is $3. Southern Division sells Part 43X to other companies for $39. The Northern Division of Norris Corporation can use Part 43X in one of its products. The Southern Division has enough idle capacity to produce all of the units of Part 43X that the Northern Division would require. What is the lowest transfer price at which the Southern Division should be willing to sell Part 43X to the Northern Division?

$32.

$35.

$36.

$39.

Solutions

Expert Solution

34) Answer:Option 2) $20 is correct.

Because The Hinge Division is operating significantly below capacity ,So it should transfer hinges to door division at variable cost .

35) Answer:Option 4) $1.33 is correct.

Maximum price Polishing Division would like to pay for 21,000 hinges is the price on which they received an offer from outside vendor i.e $1.33 per hinges.

As we know from the fact, Hinge Division is operating significantly below capacity, so they can produce extra 21,000 Hinges without loosing any profit from the current production.

Calculation of proft on if they transfer on $1.33:

Transfer price $1.33

Less: Variable cost $1.16

Profit $0.17

So, the maximum transfer price from the Hinge Division to the Polishing Division is $1.33

36) Answer:Option 1) $32 is correct.

The lowest price the part should be sold for is the total amount of variable costs that would be incurred ($15 + $6 + $11 = $32).

ekkarill92 answered 1 year ago

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