Southfield Division offers its product to outside markets for $133. It incurs variable costs of $58 per unit and fixed costs of $148,000 per month based on monthly production of 23,800 units. Northfield Division can acquire the product from an alternate supplier for $138 per unit or from Southwest Division for a transfer price of $133 plus $9 per unit in transportation costs. Required: a. What are the costs and benefits of the alternatives available to Southfield Division and Northfield Division with respect to the transfer of Southfield Division's product? Assume that Southfield Division can market all that it can produce. b. How would your answer change if Southfield Division had idle capacity sufficient to cover all of Northfield Division's needs? a. Net benefit b. Net benefit per unit per unit

Southfield Division offers its product to outside markets for $133. It incurs variable costs of $58 per unit and fixed costs of $148,000 per month based on monthly production of 23,800 units. Northfield Division can acquire the product from an alternate supplier for $138 per unit or from Southwest Division for a transfer price of $133 plus $9 per unit in transportation costs. Required: a. What are the costs and benefits of the alternatives available to Southfield Division and Northfield Division with respect to the transfer of Southfield Division's product? Assume that Southfield Division can market all that it can produce. b. How would your answer change if Southfield Division had idle capacity sufficient to cover all of Northfield Division's needs? a. Net benefit b. Net benefit per unit per unit

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Company E has two divisions, Division A and Division B. Division A is currently buying Component X from an external seller for $13. Division B produces Component X and has excess capacity. Using the following data, what would the transfer price per unit if Division A purchased Component X from Division B at the market-based transfer price? • Variable cost per unit $6 • Fixed cost per unit 1.65 • Division B sales price of Component X 14.50
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Spark Ltd has two divisions, assembly and electrical. The assembly division transfers partially completed components to the electrical division at a predetermined transfer price. The assembly division’s standard variable production cost per unit is $550. This division has spare capacity, and itcould sell all its components to outside buyers at $680 per unit in a perfectly competitive market.Required:a) Determine a transfer price using the general rule.b) How would the transfer price change if the assembly division had no spare capacity?c) What transfer price would you recommend if there was no outside market for the transferred component and the assembly division had spare capacity?d) Explain how negotiation between the supplying and buying units may be used to set transfer prices. How does this relate to the general transfer pricing rule?
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