Kelowna Company has two divisions, A and B. Division A
manufactures 12,000 units of product per month. The cost per unit
is calculated as follows.
Variable costs | $ | 10 |
Fixed costs | 20 | |
Total cost | $ | 30 |
Division B uses the product created by Division A. No outside
market for Division A’s product exists. The fixed costs incurred by
Division A are allocated headquarters-level facility-sustaining
costs. The manager of Division A suggests that the product be
transferred to Division B at a price of at least $30 per unit. The
manager of Division B argues that the same product can be purchased
from another company for $26 per unit and requests permission to do
so.
Required
a-1. How much would the division gain or lose if Division B were to purchase the product from the outside company for $26 per unit
|
a-1 Loss of Division A is equal to loss of contribution margin as fixed costs will still be incurred = $26-$10
= $16 per unit
Loss to Division B = $0
Loss to Company = $16 per unit
Kelowna Company has two divisions, A and B. Division A manufactures 12,000 units of product per...
Kelowna Company has two divisions, A and B. Division A manufactures 12,000 units of product per month. The cost per unit is calculated as follows. Variable costs $ 10 Fixed costs 20 Total cost $ 30 Division B uses the product created by Division A. No outside market for Division A’s product exists. The fixed costs incurred by Division A are allocated headquarters-level facility-sustaining costs. The manager of Division A suggests that the product be transferred to Division B at...
ASAP!!! Kelowna Company has two divisions, A and B. Division A manufactures 12,000 units of product per month. The cost per unit is calculated as follows. Variable costs $ 10 Fixed costs Total cost $ Division B uses the product created by Division A. No outside market for Division A's product exists. The fixed costs incurred by Division A are allocated headquarters-level facility-sustaining costs. The manager of Division A suggests that the product be transferred to Division B at a...
Gibson Company has two divisions, A and B. Division A manufactures 6,000 units of product per month. The cost per unit is calculated as follows. Variable costs Fixed costs Total cost $ 6.30 20.60 $26.90 Division B uses the product created by Division A. No outside market for Division A's product exists. The fixed costs incurred by Division A are allocated headquarters-level facility-sustaining costs. The manager of Division A suggests that the product be transferred to Division B at a...
Franklin Company has two divisions, A and B. Division A manufactures 5,600 units of product per month. The cost per unit is calculated as follows. Variable costs Fixed costs Total cost $ 5.20 19.90 $26.10 Division B uses the product created by Division A. No outside market for Division A's product exists. The fixed costs incurred by Division A are allocated headquarters-level facility Sustaining costs. The manager of Division A suggests that the product be transferred to Division B at...
McFarlane Company has two divisions, Division C and Division D. Division C manufactures Part C82 and sells it to Division D, and also sells the same part to the outside market for $73 per unit. Division C has capacity to make 1,200,000 units of C82 per year. The division's fixed costs are $ 6,500,000 per year and its variable costs per unit are as follows: Part C82 is an essential component for Division D's only product; the division sells 550,000...
Phoenix Inc., a cellular communication company, has multiple business units, organized as divisions. Each division’s management is compensated based on the division’s operating income. Division A currently purchases cellular equipment from outside markets and uses it to produce communication systems. Division B produces similar cellular equipment that it sells to outside customers—but not to division A at this time. Division A’s manager approaches division B’s manager with a proposal to buy the equipment from division B. If it produces the...
RHODE ISLAND CORPORATION …… has two divisions, A and B, which manufacture bicycles. Division A produces the bicycle frame, and Division B assembles the rest of the bicycle. There is a market for both the bicycle frame produced by Division A, and the final product. Each division is treated as a profit center and have complete autonomy in setting transfer prices and in deciding how much, if any, units to produce. The transfer price for the bicycle frame has been...
Truball Inc., which manufactures sports equipment, consists of several operating divisions. Division A has decided to go outside the company to buy materials since division B plans to increase its selling price for the same materials to $200. Information for division A and division B follows: Outside price for materials $180 Division A’s annual purchases 13,000 units Division B’s variable costs per unit $170 Division B’s fixed costs, per year $ 1,310,000 Division B’s capacity utilization 100 % Required: 1....
Truball Inc., which manufactures sports equipment, consists of several operating divisions. Division A has decided to go outside the company to buy materials since division B plans to increase its selling price for the same materials to $200. Information for division A and division B follows: Outside price for materials $160 Division A’s annual purchases 11,000 units Division B’s variable costs per unit $150 Division B’s fixed costs, per year $ 1,270,000 Division B’s capacity utilization 100 % Required: 1....
Truball Inc., which manufactures sports equipment, consists of several operating divisions. Division A has decided to go outside the company to buy materials since division B plans to increase its selling price for the same materials to $200. Information for division A and division B follows: Outside price for materials $120 Division A’s annual purchases 7,000 units Division B’s variable costs per unit $110 Division B’s fixed costs, per year $ 1,190,000 Division B’s capacity utilization 100 % Required: 1....