The nest two qpuestions pertain so tive same commpany 3 Parts Devision of hume C

Question

The nest two qpuestions pertain so tive same commpany 3 Parts Devision of hume Company prouces a art (hni Tollw sells o Copacity in units Selling price per uni Variable manufactrng costs per umit s 28.00 ne s 2.00 er Variable selling cost per wnit Fixed costs per unit at capacy 9.00 nes un Assembly Division of ttune C ompony would like to buy this pa from Parts Dvion Assenhly D Parts Dvion sells to Asseb presenily purchasing the part from an outside source a 537 pes unis Division, variable selling costs can he avoided. currently Parts Division is operatimg at capauity and seling slil i prondaces Whar in thec ecs aabk l price from the viewpoint of the selling drvision A. $43.00 B. $37.00 C. $28.00 D. $39.00 E. None of the above capacity by 50%. Fixed costs per unit at the new capacity will be SS per unt Assame that the demand for the product remains the same. If Asseribly Division needs 40,000 units of the part, what is thec minimum transfer price Parts Division requires if they purchase the equipment? A. $28.00 B. $31.75 C. $43.00 D. S32.25 E. None of the above is considering relacing one of its machines with a more efficint model, which will increase its

Explanation / Answer

3. Option A.43 is correct

From the viewpoint of the selling division minimum acceptible price is = variable costs + conribution lost from sales to outsiders.

Minimum transfer price:

Variable costs= 28

Contribution lost = 45-28-2= 15

Minimum transfer price= 28+15= 43

4. option E. none of the above

Increase in fixed cost:

New capacity= 60000*1.5= 90000

New machine fixed costs= 90000*8= 720000

existing fixed costs= 60000*9= 540000

Increase in fixed costs= 180000

if 40000 units are to transferred, then only 50000 units will be left for regual customers, that means 10000 units regular contribution is lost.

Hence price includes contribution lost on 10000 units= 10000* 15= 150000

Total costs:

unit price 36.25 not available hence option E. none of the above is correct

Variable costs= 40000*28 1120000 Increase in fixed costs 180000 Contribution lost 150000 a Total costs 1450000 b Units 40000 c=a/b Unit price 36.25

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