Grover Corp. Is a manufacturing company that produces golf clubs. Birdie is a di
ID: 2564569 • Letter: G
Question
Grover Corp. Is a manufacturing company that produces golf clubs. Birdie is a divislon of Grover that manufactures putters. Birdie's putters are used in Grover's golf club sets and are sold to other golf wholesalers. Cost information per putter follows: $25.00 Variable cost Full cost28.00 Market price 42.00 In addition, its capacity data follow Capacity per year Current production level 40,000 putthers 30,000 putters Required: 1. Assuming Grover produces 3,000 putters per year, determine the overall benefit of using putters from Birdie instead of purchasing them externally 2. Determine the maximum price that the production facility would be willing to pay to purchase the putters from Birde. 3. Determine the minimum that Birdie will accept as a transfer price. priceExplanation / Answer
1. Grover saving is $17 per putter($42 market price - $25 variable cost)
Total saving=3000×$17
=$51,000 per year.
2.
The maximum price is the market price of $42.
At this price , all the profits $17 per putter($42-$25) would go to Birdie(the seller). The golf club production facility would receive no benefit compared to purchasing the putters from the open market.
3. Since Birdie has the sufficient excess capacity, the minimum price it should accept is $25(variable cost per putter).
If this were the transfer price than all the benefits would go to the golf club production facility, which would save $17 per putter over the current market price
4.
A mutually beneficial price would mean the buyer and seller would share the $17 savings. A transfer price if $33.50 would split the benefit equally.
The seller would make:$33.59-$25=$8.50
Buying division would save: $42-$33.50=$8.50
5. If Birdie were operating at capacity, then the minimum price it would accept is $42 or the market price. There will be no savings from internal transfers.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.