Crede Inc. has two divisions. Division A makes and sells student desks. Division

Question

Crede Inc. has two divisions. Division A makes and sells student desks. Division B manufactures and sells reading lamps.

Each desk has a reading lamp as one of its components. Division A can purchase reading lamps at a cost of $9 from an outside vendor. Division A needs 14,100 lamps for the coming year.

Division B has the capacity to manufacture 54,100 lamps annually. Sales to outside customers are estimated at 40,000 lamps for the next year. Reading lamps are sold at $11 each. Variable costs are $5 per lamp and include $2 of variable sales costs that are not incurred if lamps are sold internally to Division A. The total amount of fixed costs for Division B is $111,390.

Consider the following independent situations.

(a) What should be the minimum transfer price accepted by Division B for the 14,100 lamps and the maximum transfer price paid by Division A? Minimum transfer price Maximum transfer price per unit per unit s Attempts: 0 of 5 used SAVE FOR LATERSUBMIT ANSWER SUBMIT ANSWER

Explanation / Answer

Minimum Transfer Price = Variable cost of Division B excluding variable sales costs

Minimum Transfer Price = 5-2

Minimum Transfer Price = $ 3 Per unit

Maximum Transfer Price = Purchase Price of Lamp by Division A

Maximum Transfer Price =$ 9 Per unit

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