Question

Fyodor Corporation has a Parts Division that does work for other Divisions in the company as well as for outside customers. The company's Machine Division has asked the Parts Division to provide it with 8,800 special parts each year. The special parts would require $35 per unit in variable production costs.

The Machine Division has a bid from an outside supplier for the special parts at $50.10 per unit. In order to have time and space to produce the special part, the Parts Division would have to cut back production of another part-the QR4 that it presently is producing. The QR4 sells for $68 per unit, and requires $34 per unit in variable production costs. Packaging and shipping costs of the QR4 are $2 per unit. Packaging and shipping costs for the new special part would be only $0.50 per unit. The Parts Division is now producing and selling 44,000 units of the QR4 each year. Production and sales of the QR4 would drop by 5% if the new special part is produced for the Machine Division.

Required:

a. What is the range of transfer prices within which both the Divisions' profits would increase as a result of agreeing to the transfer of 8,800 special parts per year from the Parts Division to the Machine Division? (Round your final answers to 2 decimal places.)

b. Is it in the best interests of Fyodor Corporation for this transfer to take place?

Answer 1

Fyoder Corporation has work for company and out sider division
Two division
1.Part Division
2. Machine Division
1. Detail of part Division
it produce product QR4 which is cut off if he produced special part for Machine Division.
Detail of Product-QR4
Selling Price-$68 per unit
Variable cost-$34 per unit
Packing & Shipping cost-$2 per unit
Contribution -$32 per unit($68-$34-$2)
Part division will incured additional shiping charge for machine division is $0.5 per unit
Part Division currently produced and sale 44000 unit
if new special part produced for Machine Division Sale and Production reduced 2200 Unit(44000*5%)
2. Machine Divison Detail
Unit Require of special part is 8800 units
Additional Variable cost-$35 per unit	OR
Outsider Supplier qutated this Special Part @ $50.10 per unit
Answer of -A
Maximum Transfer Pricing is $50.10
Minimum Transfer Pricing is $40.5
Contributation Loss : $32*2200=$70400
ADD:Recovery of Variable cost of QR4: $32.5*8800=$286000
(Contribution loss-$32+Addi.packing cost-$.05=$32.5 per unit)
Total: $70400+$286000=$356400
price per unit: $356400/8800=40.5
Anser of-B
Fyodor corporation's Machine division Will Purchase this Special part from Part Division so that cost is saving $9.6 per unit($50.10-$40.5). Company object of GOAL CONGRUENCE is achivable. Manager will forgot it's Individual Goal.