Mossfort, Inc., has a division in Canada that makes long-lasting exterior wood stain. Mossfort has another U.S. division, the Retail Division, that operates a chain of home improvement stores. The Retail Division would like to buy the unique, long-lasting wood stain from the Canadian division, since this type of stain is not currently available. The Exterior Stain Division incurs manufacturing costs of $13.30 for one gallon of stain. If the Retail Division purchases the stain from the Canadian division, the shipping costs will be $1.40 per gallon, but sales commissions of $0.70 per gallon will be avoided with an internal transfer. The Retail Division plans to sell the stain for $35.10 per gallon. Normally, the Retail Division earns a gross margin of 30 percent above cost of goods sold. Required: 1. Which Section 482 method should be used to calculate the allowable transfer price? Resale price method ✓ 2. Calculate the appropriate transfer price per gallon. $ per unit

Mossfort, Inc., has a division in Canada that makes long-lasting exterior wood stain. Mossfort has another U.S. division, the Retail Division, that operates a chain of home improvement stores. The Retail Division would like to buy the unique, long-lasting wood stain from the Canadian division, since this type of stain is not currently available. The Exterior Stain Division incurs manufacturing costs of $13.30 for one gallon of stain. If the Retail Division purchases the stain from the Canadian division, the shipping costs will be $1.40 per gallon, but sales commissions of $0.70 per gallon will be avoided with an internal transfer. The Retail Division plans to sell the stain for $35.10 per gallon. Normally, the Retail Division earns a gross margin of 30 percent above cost of goods sold. Required: 1. Which Section 482 method should be used to calculate the allowable transfer price? Resale price method ✓ 2. Calculate the appropriate transfer price per gallon. $ per unit

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter10: Decentralization: Responsibility Accounting, Performance Evaluation, And Transfer Pricing

Section: Chapter Questions

Problem 15E: Mossfort, Inc., has a division in Canada that makes long-lasting exterior wood stain. Mossfort has...

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Mossfort, Inc., has a division in Canada that makes long-lasting exterior wood stain. Mossfort has another U.S. division, the Retail Division, that operates a chain of home improvement stores. The Retail Division would like to buy the unique, long-lasting wood stain from the Canadian division, since this type of stain is not currently available. The Exterior Stain Division incurs manufacturing costs of 13.45 for one gallon of stain. If the Retail Division purchases the stain from the Canadian division, the shipping costs will be 1.40 per gallon, but sales commissions of 0.75 per gallon will be avoided with an internal transfer. The Retail Division plans to sell the stain for 32.80 per gallon. Normally, the Retail Division earns a gross margin of 35 percent above cost of goods sold. Required: 1. Which Section 482 method should be used to calculate the allowable transfer price? 2. Calculate the appropriate transfer price per gallon. (Round to the nearest cent.)
Bollozos Afterlife Corporation's Division A manufactures and sells product Brand X, which is used in refrigeration systems. Per-unit variable manufacturing and selling costs amount to P20 and P5, respectively The Division can sell this item to external domestic customers for P36 or, alternatively, transfer the product to the company's Division B. Division B is currently purchasing a similar unit from Taiwan for P33. Assume use of the general transfer-pricing rule. •What is the most that the Division B would be willing to pay the Division A for one unit? • If Division A had excess capacity, what transfer price would the Division's management set? · If Division A had no excess capacity, what transfer price would the Divisions management set? If Division A had no excess capacity, what transfer price would the Divisions management set assuming that Division A was able to reduce the variable cost of internal transfers by P4 per unit
Collyer Products Inc. has a Valve Division that manufactures and sells a standard valve as follows: Capacity in units Selling price to outside customers on the intermediate market Variable costs per unit Fixed costs per unit (based on capacity) 10,000 15 8 5 The company has a Pump Division that could use this valve in the manufacture of one of its pumps. The Pump Division is currently purchasing 10,000 valves per year from an overseas supplier at a cost of $14 per valve. 3. Assume again that the Valve Division is selling all that it can produce to outside customers on the intermediate market. Also assume that $2 in variable expenses can be avoided on transfers within the company, due to reduced selling costs. What is the acceptable range, if any, for the transfer price between the two divisions? Transfer price 4. Assume the Pump Division needs 20,000 special high-pressure valves per year. The Valve Division's variable costs to manufacture and ship the special valve would be $10 per…
Zumsteg Products, Incorporated, has a Pump Division that manufactures and sells a number of products, including a standard pump. Date concerning that pump appear below: Capacity in units Selling price to outside customers Variable cost per unit Fixed cost per unit (based on capacity) 72,800 #106 70.0 $20 The company has a Pool Products Division that could use this pump in one of its products. The Pool Products Division is currently purchasing 8,800 of these pumps per year from an overseas supplier at a cost of $99 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 ange, If any, for the transfer price between the two divisions? Note: Round your answers to 1 decimal place.
Glide Behind Corporation manufactures and sells small cargo trailers. The Wheel Division creates parts that are both sold externally and transferred internally to the Assembly Division. Variable production costs of wheel set #102 are $80, and each set sells externally for $150. What would you recommend as the internal transfer price from the Wheel Division to the Assembly Division if a competitive external market exists for wheel set #102? Would your answer change if there were no external market this component? Why? What would the transfer price be if upper management required cost plus 25 percent as the transfer price?
Calculating Transfer Price Teslum Inc. has a number of divisions, including the Machina Division, a producer of high-end espresso makers, and the Java Division, a chain of coffee shops. Machina Division produces the EXP-100 model espresso maker that can be used by Java Division to create various coffee drinks. The market price of the EXP-100 model is 950, and the full cost of the EXP-100 model is 475. Required: 1. If Teslum has a transfer pricing policy that requires transfer at full cost, what will the transfer price be? Do you suppose that Machina and Java divisions will choose to transfer at that price? 2. If Teslum has a transfer pricing policy that requires transfer at market price, what would the transfer price be? Do you suppose that Machina and Java divisions would choose to transfer at that price? 3. Now suppose that Teslum allows negotiated transfer pricing and that Machina Division can avoid 135 of selling expense by selling to Java Division. Which division sets the minimum transfer price, and what is it? Which division sets the maximum transfer price, and what is it? Do you suppose that Machina and Java divisions would choose to transfer somewhere in the bargaining range?
Sony manufactures and sells television sets. Its assembly division (AD) buys television screens from the screen division (SD) and assembles the TV sets. The SD, which is operating at capacity, incurs an incremental manufacturing cost of $60 per screen. The SD can sell all its output to the outside market at a price of $110 per screen, after incurring a variable marketing and distribution cost of $10 per screen. If the AD purchases screens from outside suppliers at a price of $110 per screen, it will incur a variable purchasing cost of $8 per screen. Sony’s division managers can act autonomously to maximize their own division’s operating income. Required: What is the minimum transfer price at which the SD manager would be willing to sell screens to the AD? What is the maximum transfer price at which the AD manager would be willing to purchase screens from the SD? Now suppose that the SD can sell only 80% of its output capacity of 10,000 screens per month on the open market.…
The Windshield division of Fast Car Co. makes windshields for use in Fast Car’s Assembly division. The Windshield division incurs variable costs of $200 per windshield and has capacity to make 500,000 windshields per year. The market price is $450 per windshield. The Windshield division incurs total fixed costs of $3,000,000 per year. If the Windshield division has excess capacity, what is the range of possible transfer prices that could be used on transfers between the Windshield and Assembly divisions?
The Slate Company manufactures and sells television sets. Its assembly division (AD) buys television screens from the screen division (SD) and assembles the TV sets. The SD, which is operating at capacity, incurs an incremental manufacturing cost of $65 per screen. The SD can sell all its output to the outside market at a price of $100 per screen, after incurring a variable marketing and distribution cost of $8 per screen. If the AD purchases screens from outside suppliers at a price of $100 per screen, it will incur a variable purchasing cost of $7 per screen. Slate’s division managers can act autonomously to maximize their own division’s operating income. Q. Now suppose that the SD can sell only 70% of its output capacity of 20,000 screens per month on the open market. Capacity cannot be reduced in the short run. The AD can assemble and sell more than 20,000 TV sets per month. a. From the point of view of Slate’s management, how much of the SD output should be transferred to the AD?
The Slate Company manufactures and sells television sets. Its assembly division (AD) buys television screens from the screen division (SD) and assembles the TV sets. The SD, which is operating at capacity, incurs an incremental manufacturing cost of $65 per screen. The SD can sell all its output to the outside market at a price of $100 per screen, after incurring a variable marketing and distribution cost of $8 per screen. If the AD purchases screens from outside suppliers at a price of $100 per screen, it will incur a variable purchasing cost of $7 per screen. Slate’s division managers can act autonomously to maximize their own division’s operating income. Q. What is the maximum transfer price at which the AD manager would be willing to purchase screens from the SD?
The Slate Company manufactures and sells television sets. Its assembly division (AD) buys television screens from the screen division (SD) and assembles the TV sets. The SD, which is operating at capacity, incurs an incremental manufacturing cost of $65 per screen. The SD can sell all its output to the outside market at a price of $100 per screen, after incurring a variable marketing and distribution cost of $8 per screen. If the AD purchases screens from outside suppliers at a price of $100 per screen, it will incur a variable purchasing cost of $7 per screen. Slate’s division managers can act autonomously to maximize their own division’s operating income. Q. Now suppose that the SD can sell only 70% of its output capacity of 20,000 screens per month on the open market. Capacity cannot be reduced in the short run. The AD can assemble and sell more than 20,000 TV sets per month. a. If Slate mandates the SD and AD managers to “split the difference” on the minimum and maximum transfer…
The Windshield division of Fast Car Co. makes windshields for use in Fast Car’s Assembly division. The Windshield division incurs variable costs of $200 per windshield and has capacity to make 500,000 windshields per year. The market price is $450 per windshield. The Windshield division incurs total fixed costs of $3,000,000 per year. If the Windshield division is operating at full capacity, what transfer price should be used on transfers between the Windshield and Assembly divisions?