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Exam 26: Transfer Pricing

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Question 21

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The Parts Division of Nydron Corporation makes Part Y6P,which it sells to outside companies for $17.00 per unit.According to the cost accounting system,the costs of making one unit of Part Y6P consist of $7.00 for direct materials,$3.00 for direct labor,$4.50 for variable manufacturing overhead,and $1.20 for fixed manufacturing overhead.The Parts Division has enough idle capacity to make 1,000 units of Part Y6P each month.The Assembly Division of Nydron Corporation can use Part Y6P in one of its products.At present,the Assembly Division is purchasing an equivalent part from an outside supplier for $16.85 per unit.The Assembly Division needs 2,000 units of the part each month.It has been suggested that the Assembly Division buy Part Y6P from the Parts Division instead of buying the equivalent part from the outside supplier.The transfer price for this transaction would lie within what limits?

A) equal to or greater than $15.75 and less than or equal to $16.85
B) equal to or greater than $15.70 and less than or equal to $17.00
C) equal to or greater than $14.50 and less than or equal to $17.00
D) equal to or greater than $14.50 and less than or equal to $16.85

E) C) and D)
F) B) and C)

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Question 22

Multiple Choice

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Using the formula in the text,if the lowest acceptable transfer price from the viewpoint of the selling division is $75 and the opportunity cost per unit on outside sales is $24,then the variable cost per unit must be:

A) $24 per unit
B) $99 per unit
C) $51 per unit
D) $75 per unit

E) C) and D)
F) B) and D)

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Question 23

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(Appendix 11A) Bacot Products, Inc., has a Valve Division that manufactures and sells a number of products, including a standard valve that could be used by another division in the company, the Pump Division, in one of its products. Data concerning that valve appear below: The Pump Division is currently purchasing 8,000 of these valves per year from an overseas supplier at a cost of $47 per valve. -Assume that the Valve Division has enough idle capacity to handle all of the Pump Division's needs.What should be the minimum acceptable transfer price for the valves from the standpoint of the Valve Division?

Trendell Products,Inc.,has a Motor Division that manufactures and sells a number of products,including a standard motor.Data concerning that motor appear below: The company has a Automotive Division that could use this motor in one of its products.The Automotive Division is currently purchasing 8,000 of these motors per year from an overseas supplier at a cost of $66 per motor. Required: Assume that the Motor Division has enough idle capacity to handle all of the Automotive Division's needs.What is the acceptable range,if any,for the transfer price between the two divisions?

When a dispute arises over a transfer price,top managers should intervene to keep divisional managers from making a costly mistake,even though the divisions are evaluated as profit centers.

Vandermeer Products,Inc.,has a Antennae Division that manufactures and sells a number of products,including a standard antennae.Data concerning that antennae appear below: The company has a Aircraft Products Division that could use this antennae in one of its products.The Aircraft Products Division is currently purchasing 11,000 of these antennaes per year from an overseas supplier at a cost of $88 per antennae. Required: a.Assume that the Antennae Division is selling all of the antennaes it can produce to outside customers.What is the acceptable range,if any,for the transfer price between the two divisions? b.Assume again that the Antennae Division is selling all of the antennaes it can produce to outside customers.Also assume that $1 in variable expenses can be avoided on transfers within the company due to reduced shipping and selling costs.What is the acceptable range,if any,for the transfer price between the two divisions?

(Appendix 11A) Fingado Products, Inc., has a Detector Division that manufactures and sells a number of products, including a standard detector that could be used by another division in the company, the Commercial Security Division, in one of its products. Data concerning that detector appear below: The Commercial Security Division is currently purchasing 6,000 of these detectors per year from an overseas supplier at a cost of $91 per detector. -Assume that the Detector Division is selling all of the detectors it can produce to outside customers.What should be the minimum acceptable transfer price for the detectors from the standpoint of the Detector Division?

Fois Company has two divisions,Division X and Division Y.Division X has a production capacity of 5,000 units of a particular part per month.Division X sells 4,400 units of the part each month to outside customers at a contribution margin of $56 per unit.Division Y would like to buy 800 units of the part each month from Division X.In computing the lowest acceptable transfer price from the perspective of the selling division,the lost contribution margin per unit portion of the transfer price computation would be:

(Appendix 11A) Bacot Products, Inc., has a Valve Division that manufactures and sells a number of products, including a standard valve that could be used by another division in the company, the Pump Division, in one of its products. Data concerning that valve appear below: The Pump Division is currently purchasing 8,000 of these valves per year from an overseas supplier at a cost of $47 per valve. -What is the maximum price that the Pump Division should be willing to pay for valves transferred from the Valve Division?

(Appendix 11A) Stokan Products, Inc., has a Antennae Division that manufactures and sells a number of products, including a standard antennae that could be used by another division in the company, the Aircraft Products Division, in one of its products. Data concerning that antennae appear below: The Aircraft Products Division is currently purchasing 5,000 of these antennaes per year from an overseas supplier at a cost of $57 per antennae. -What is the maximum price that the Aircraft Products Division should be willing to pay for antennaes transferred from the Antennae Division?

Delemos Products,Inc.,has a Transmitter Division that manufactures and sells a number of products,including a standard transmitter.Data concerning that transmitter appear below: The Remote Devices Division of Delemos Products,Inc needs 6,000 special heavy-duty transmitters per year.The Transmitter Division's variable cost to manufacture and ship this special transmitter would be $66 per unit.Because these special transmitters would requires more manufacturing resources than the standard transmitter,the Transmitter Division would have to reduce its production and sales of standard transmitters to outside customers from 83,000 units per year to 76,400 units per year. From the standpoint of the Transmitter Division,what is the minimal acceptable transfer price for the special transmitters for the Remote Devices Division?

(Appendix 11A) Division S of Kracker Company makes a part that it sells to other companies. Data on that part appear below: Division B, another division of Kracker Company, presently is purchasing 10,000 units of a similar product each period from an outside supplier for $28 per unit, but would like to begin purchasing from Division S. -Suppose that Division S can sell all that it can produce to outside customers.If Division S sells to Division B at a price of $28 per unit,the company as a whole will be:

(Appendix 11A) Division P of the Nyers Company makes a part that can either be sold to outside customers or transferred internally to Division Q for further processing. Annual data relating to this part are as follows: Division Q of the Nyers Company requires 15,000 units per year and is currently paying an outside supplier $33 per unit. Consider each part below independently. -If outside customers demand 80,000 units,then according to the formula in the text,what is the lowest acceptable transfer price from the viewpoint of the selling division?

Zumsteg Products,Inc.,has a Pump Division that manufactures and sells a number of products,including a standard pump.Data concerning that pump appear below: The company has a Pool Products Division that could use this pump in one of its products.The Pool Products Division is currently purchasing 7,000 of these pumps per year from an overseas supplier at a cost of $81 per pump. Required: Assume that the Pump Division has enough idle capacity to handle all of the Pool Products Division's needs.What is the acceptable range,if any,for the transfer price between the two divisions?

The selling division in a transfer pricing situation should want the transfer price to cover at least the full cost per unit plus the lost contribution margin per unit on outside sales.

(Appendix 11A) Division A makes a part with the following characteristics: Division B, another division of the same company, would like to purchase 5,000 units of the part each period from Division A. Division B is now purchasing these parts from an outside supplier at a price of $24 each. -Suppose that Division A is operating at capacity and can sell all of its output to outside customers at its usual selling price.If Division A agrees to sell the parts to Division B at $24 per unit,the company as a whole will be:

(Appendix 11A) Fregozo Products, Inc., has a Connector Division that manufactures and sells a number of products, including a standard connector that could be used by another division in the company, the Transmission Division, in one of its products. Data concerning that connector appear below: The Transmission Division is currently purchasing 8,000 of these connectors per year from an overseas supplier at a cost of $45 per connector. -Assume that the Valve Division is selling all of the valves it can produce to outside customers.Also assume that $10 in variable expenses can be avoided on transfers within the company due to reduced shipping and selling costs.What should be the minimum acceptable transfer price for the valves from the standpoint of the Valve Division?

(Appendix 11A) Wetherald Products, Inc., has a Pump Division that manufactures and sells a number of products, including a standard pump that could be used by another division in the company, the Pool Products Division, in one of its products. Data concerning that pump appear below: The Pool Products Division is currently purchasing 4,000 of these pumps per year from an overseas supplier at a cost of $74 per pump. -Assume that the Pump Division has enough idle capacity to handle all of the Pool Products Division's needs.What should be the minimum acceptable transfer price for the pumps from the standpoint of the Pump Division?

Wengert Products,Inc.,has a Motor Division that manufactures and sells a number of products,including a standard motor.Data concerning that motor appear below: The Automotive Division of Wengert Products,Inc needs 8,000 special heavy-duty motors per year.The Motor Division's variable cost to manufacture and ship this special motor would be $20 per unit.Because these special motors would requires more manufacturing resources than the standard motor,the Motor Division would have to reduce its production and sales of standard motors to outside customers from 40,000 units per year to 27,200 units per year. What is the total contribution margin on sales to outside customers that the Motor Division would give up if it were to make the special motors for the Automotive Division?

(Appendix 11A) Ahart Products, Inc., has a Transmitter Division that manufactures and sells a number of products, including a standard transmitter that could be used by another division in the company, the Remote Devices Division, in one of its products. Data concerning that transmitter appear below: The Remote Devices Division is currently purchasing 4,000 of these transmitters per year from an overseas supplier at a cost of $59 per transmitter. -Assume that the Valve Division is selling all of the valves it can produce to outside customers.Also assume that $3 in variable expenses can be avoided on transfers within the company due to reduced shipping and selling costs.What should be the minimum acceptable transfer price for the valves from the standpoint of the Valve Division?