Decision on Transfer Pricing Materials used by the Instrument Division of XPort

Question

Decision on Transfer Pricing Materials used by the Instrument Division of XPort Industries are currently purchased from outside suppliers at a cost of $314 per unit. However, the same materials are available from the Components Division. The Components Division has unused capacity and can produce the materials needed by the Instrument Division at a variable cost of $261 per unit. a. If a transfer price of $286 per unit is established and 43,500 units of materials are transferred, with no reduction in the Components Division's current sales, how much would XPort Industries total income from operations increase? b. How much would the Instrument Division's income from operations increase? c. How much would the Components Division's income from operations increase?

Explanation / Answer

1. Xport's industry total income will increase by

Additional contribution: ($314-$261)*43500=$2305500

B. Instrument division income will increase by

($314-$286)*43500=$1218000

C. Component's division income will increase by

Transfer price=$286

Less: variable cost: $261

Contribution=$25*43500=$1087500

Do give your feedback!! Happy Learning :)

Related Questions

Navigate

• Browse (All)
• Browse D
• Subjects

---

---

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