Tulip Company is made up of two divisions: A and B. Division A produces a widget

Question

Tulip Company is made up of two divisions: A and B. Division A produces a widget that Division B uses in the production of its product. Variable cost per widget is $0.80; full cost is $1.10. Comparable widgets sell on the open market for $1.60 each. Division A can produce up to 1.50 million widgets per year but is currently operating at only 50 percent capacity. Division B expects to use 75,000 widgets in the current year.

Tulip Company is made up of two divisions: A and B. Division A produces a widget that Division B uses in the production of its product. Variable cost per widget is $0.80; full cost is $1.10. Comparable widgets sell on the open market for $1.60 each. Division A can produce up to 1.50 million widgets per year but is currently operating at only 50 percent capacity. Division B expects to use 75,000 widgets in the current year. Required 1. Determine the minimum and maximum transfer prices. (Enter your answers to 2 decimal places.) Minimum Transfer Price Maximum Transfer Price 2. Calculate Tulip Company's total benefit of having the widgets transferred between these divisions. Beneft 3. If the transfer price is set at $.80 per unit, determine how much profit Division A will make on the transfer. Determine how much Division B will save by not purchasing the widgets on the open market. (Round your answers to 2 decimal places.) Division A Profit per Unit Division B Savings per Unit

Explanation / Answer

(1)

Minimum Transfer Price

0.80 (variable cost)

Maximum Transfer Price

1.60 (market price)

(2) Total Benefit to compant if widget get transfer between two divisions :-

Units transfer = 75000

Benefit = (1.60 – 0.80) * 75000 = 60000

(3) If TP is 0.80 :-

Division A Profit

0

Division B Saving

(1.60 – 0.80)

0.80 per unit

(4) If TP is 1.60 :-

Division A Profit

(1.60 – 0.80)

0.80 per unit

Division B Saving

0

(5) Transfer Price Recommend:-

There is a TP range

1.60 > TP > 0.80

We recommend TP should be in between this range i.e 1.20

Minimum Transfer Price

0.80 (variable cost)

Maximum Transfer Price

1.60 (market price)

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.