Question

Tulip 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 $1.30; full cost is $2.10. Comparable widgets sell on the open market for $2.70 each. Division A can produce up to 2.50 million widgets per year but is currently operating at only 50 percent capacity. Division B expects to use 125,000 widgets in the current year. Required: 1. Determine the minimum and maximum transfer prices. 2. Calculate Tulip Company's total benefit of having the widgets transferred between these divisions. 3. If the transfer price is set at $1.30 per unit, determine how much profit Division A will make on the transfer. Determine how much Division B will save by not purchasing the widgets on the open market. 4. If the transfer price is set at $2.70 per unit, determine how much profit Division A will make on the transfer. Determine how much Division B will save by not purchasing the widgets on the open market. 5. What transfer price would you recommend to split the difference? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 | Required 5 Determine the minimum and maximum transfer prices. (Enter your answers to 2 decimal places.) Minimum Transfer Price Maximum Transfer Price $ $ 1.30 2.70 Required 1 Required 2 >

Answer 1

Answer 1 Page No ① MOO Minimum pouces maru mum mm Trang To from the data , Minimum transfer price = variable conf per widget = $1.30 1: Minimum transfer price = $130 the Marimun transfer price = comparable widgelis sell on open market price of each = $870 @ 1. Maximum transfer price - 42.40 Tebal benebit Total benefit = 62.40 – 41,30) x 125000 (Use adidgels) - 1:40x125000 = $175000 = 25000

1 Page Nola ... Total benefit = $145000 3 Division A Pic fit & Division 8 savings If transfer price is set at $1,30 per unit Division A profit = $1.30 - $1.30 =50 :: Division A Profit = $o por unit Division B savings = $2:40 --$7.30 = $4.40 Division @ Savings = $1.40 per tunits Division A D um a ru Division B sowings 1 If the transfer price is set at $2.70 per unit nooooit Division A profit - $ 2170 – $1.30 #1040 per unit T: Division A profit - $1.40 per unit

in Page No ③ Division B savings = $2070 – $2.70 .:. Division B savings = $0 per unit Mutueling Beneficio Turcomater Peace 7.30 + 2.90 Mutally beneficial transfer price = - 2 1: Mutually Beneficial Transfer Price = 42