Tulp Company is made up of two divisions: A and B. Division A produces a widget
ID: 2593807 • Letter: T
Question
Tulp Company is made up of two divisions: A and B. Division A produces a widget that Division B uses in the production of its product. Variable cost per widget is $0.75, full cost is $1.00 Comparable widgets sell on the open market for $1 50 each Division A can produce up to 2 million widgets per year but is currently operating at only 50 percent capacity Division B expects to use 100,000 widgets in the current year Required: 1. Determine the minimum and maximum transfer prices Minimum Transter Price 07 Maximum Transfer Price s 1 2. Calculate Tulp Company's total benefit of having the widgets transferred between these divisions s 75 3 itthe transfer price is set at S0 75 per unt, determine how much prott Division A wil make on the transfer Determine how much Division B will save by not purchasing the widgets on the open market (Round your answers to 2 decimal places.) Division A Profit Division B Savings per Unit per Unit Type here to search s0Explanation / Answer
Answer 1 - Correct
Minimum transfer price is the variable cost per unit.
Maximum transfer price is the sale price in open market
Answer 2 - Correct
Spare capacity is available with Division A. As such, supplying at variable cost will result in no profit no loss for Division A.
If Division B purchases from open market : Cost per unit will be $ 1.50 per unit
If Division B purchases from Division A : Cost per unit will be $ 0.75 per unit
Saving per unit for the COmpany as a whole - $ 0.75 per unit
Total Quantity = 100,000 units
Total savings = 100,000 units X $ 0.75 per unit = $ 75,000
Answer 3
Answer 4
Answer 5 : Mutually beneficial Transfer Price is average of Maximum and Minimum Transfer Price
Maximum Transfer Price = $ 1.50
Minimum Transfer Price = $ 0.75
Mutually beneficial transfer price = (1.50 + 0.75)/2 = $ 1.125 per unit
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