Selling prce Expenses $11 ariable Fixed (based on a capacity of 100,000 tuners p
ID: 2574542 • Letter: S
Question
Selling prce Expenses $11 ariable Fixed (based on a capacity of 100,000 tuners per year) 6 17 Operating income s 3 Wallen Products also has an Assembly Division that assemblos TVs. This division is ourrently purchasing 30 000 tuners per year from an overseas supplier at a cost of $20 per tuner, less a 10% purchase discount. The president of Waillen Products is anxious to have the Assembly Division begin purchasing its tuners from the newly acquired Tuner Division in order to "Tkeep the profits within the corporate family Required: For (1) and (2) below, assume that the Tuner Division can sell all of its output to outside TV manufacturers at the normal $20 price 1-a. What is the minimum transfer price for Tuner Division? 1-b. What is the maximum transfer price that Assembly Division is ready to pay? 1-c. Are the managers of the Tuner and Assembly Divisions ikely to voluntarily agree to a transfer price for 30,000 tuners each year? Yes No The TunerExplanation / Answer
Answer to Part 1-a
The minimum transfer pricing for Tuner Division would be the market price at which it is able to sell their product in the market. Tuner Division is working at its full capacity and so selling at cost below the current sell priced will render them losses.
Answer to Part 1-b
Assembly Division currently purchases Tuner @ $20 less 10% discount, paying net $18 in the market. If Tuner Division sells at $20 which is their outside selling price, it would be unacceptable for Assembly Division as they can purchase the same in $18 from outside. Thus maximum transfer pricing for assembly division would be $18.
Answer to Part 1-c
No, if managers have remuneration linked to their department’s performance than it is highly unlikely that they will voluntarily agree to a transfer price acceptable to both.
Answer to Part 3-a
Minimum Transfer Price for Tuner Division would be the price which will at least recover their cost, both variable as well as fixed. Thus transfer pricing would be $ 17.
Answer to Part 3 – b
Range of transfer price would be from $17 to $18, i.e. minimum price to cover cost for Tuner Div. and max price that Assembly div. pays outside.
NOTE : I HAVE MANAGED TO ANSWER AS MUCH AS I WAS ABLE TO READ FROM THE QUESTION POSTED. THE FONTS ARE TOO SMALL TO READ. PLUS AN EXPERT IS REQUIRED TO ANSWER ONLY 4 SUBPARTS AT A TIME IN CASE OF MULTI PART QUESTIONS. THANKS !!
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