Question

In: Accounting

Division X has asked Division K of the same company to supply it with 5,420 units...

Division X has asked Division K of the same company to supply it with 5,420 units of part L433 this year to use in one of its products. Division X has received a bid from an outside supplier for the parts at a price of $31.50 per unit. Division K has the capacity to produce 31,000 units of part L433 per year. Division K expects to sell 29,100 units of part L433 to outside customers this year at a price of $34.50 per unit. To fill the order from Division X, Division K would have to cut back its sales to outside customers. Division K produces part L433 at a variable cost of $26.20 per unit. The cost of packing and shipping the parts for outside customers is $3.00 per unit. These packing and shipping costs would not have to be incurred on sales of the parts to Division X.

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 5,420 parts this year from Division X to Division K? (Round your intermediate calculations and final answers to 2 decimal places. Omit the "$" sign in your response)

  The Transfer price can be greater than $  but less than $  .
b.

Is it in the best interests of the overall company for this transfer to take place?

  • Yes

  • No

c.

What is the increase in Company's profit for each unit transferred? (Round your intermediate calculations and final answer to 2 decimal places. Omit the "$" sign in your response)

  Per unit increase in profit $   

Solutions

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