Exercise M-16 (Part Level Submission) Crede Inc. has two divisions. Division A m
ID: 2568562 • Letter: E
Question
Exercise M-16 (Part Level Submission)
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 $ 9.83 from an outside vendor. Division A needs 10,500 lamps for the coming year.
Division B has the capacity to manufacture 50,400 lamps annually. Sales to outside customers are estimated at 39,900 lamps for the next year. Reading lamps are sold at $ 12.21 each. Variable costs are $ 7.42 per lamp and include $ 1.33 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 $ 81,700 .
Consider the following independent situations.
(a)
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(b)
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Exercise M-16 (Part Level Submission)
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 $ 9.83 from an outside vendor. Division A needs 10,500 lamps for the coming year.
Division B has the capacity to manufacture 50,400 lamps annually. Sales to outside customers are estimated at 39,900 lamps for the next year. Reading lamps are sold at $ 12.21 each. Variable costs are $ 7.42 per lamp and include $ 1.33 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 $ 81,700 .
Consider the following independent situations.
(a)
Your answer is correct. What should be the minimum transfer price accepted by Division B for the 10,500 lamps and the maximum transfer price paid by Division A? (Round answers to 2 decimal places, e.g. 10.50.)Minimum transfer price accepted by Division B $ per unit Maximum transfer price paid by Division A $ per unit Click if you would like to Show Work for this question:
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Attempts: 1 of 5 used(b)
Suppose Division B could use the excess capacity to produce and sell externally 19,000 units of a new product at a price of $7.72 per unit. The variable cost for this new product is $6.08 per unit. What should be the minimum transfer price accepted by Division B for the 10,500 lamps and the maximum transfer price paid by Division A? (Round answers to 2 decimal places, e.g. 10.50.)Minimum transfer price accepted by Division B $ per unit Maximum transfer price paid by Division A $ per unit Click if you would like to Show Work for this question:
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Explanation / Answer
Answer 1-a. There is enough idle capacity of the Division B to fulffill the demand of Divison A. So no outside sales is lost. Therfore, Minimum Acceptable Transfer Price = Variable Cost = $6.09 per Unit ($7.42 - $1.33). Highest acceptable Transfer Price for Division B = Price of Other Manufacturer = $9.83 per unit Range of Acceptable Transfer prices are: $6.09Related Questions
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