Crede Inc. has two divisions. Division A makes and sells student desks. Division
ID: 2517268 • Letter: C
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 $ 9.70 from an outside vendor. Division A needs 10,600 lamps for the coming year.
Division B has the capacity to manufacture 50,000 lamps annually. Sales to outside customers are estimated at 39,400 lamps for the next year. Reading lamps are sold at $ 11.77 each. Variable costs are $ 7.32 per lamp and include $ 1.28 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 $ 77,300 .
Consider the following independent situations.
Suppose Division B could use the excess capacity to produce and sell externally 19,400 units of a new product at a price of $ 7.17 per unit. The variable cost for this new product is $ 6.16 per unit. What should be the minimum transfer price accepted by Division B for the 10,600 lamps and the maximum transfer price paid by Division A? (Round answers to 2 decimal places, e.g. 10.50.)
per unit Maximum transfer price paid by Division A $
per unit
Explanation / Answer
Minimum Transfer price accepted by B = Variable Manufacturing cost
= $7.32 - $1.28
= $6.04 Per Unit
Maximum Purchase price paid by division A = Externak Purchase Cost
= $9.70 Per Unit
Suppose Division B Could use to Produce other Product.
Minimum Transfer Price accepted by B = Variable Manufacturing cost + Opportunity Cost Per Unit
= $6.04 + $1.85
= $7.89
Maximum Purchase Price Paid by Division A = External Purchase Cost
= $9.70
Particulars Amount($) Selling Price 7.17 Less : Variable Cost (6.16) Contribution 1.01 No. of Units 19400 Oppurtunity Cost (19400*$1.01) 19594 No. of lamps to internally transfer 10600 Oppurtunity Cost Per Lamp ($19594/10600) 1.85Related Questions
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