Question

Required information Exercise 11A-3 Transfer Pricing Situations [LO11-5] The following information applies to the questions displayed below] In each of the cases below, assume Division X has a product that can be sold either to outside customers or to Division Y of the same company for use in its production process. The managers of the divisions are evaluated based on their divisional profits. Case B Division X: Capacity in units Number of units being sold to outside customers Selling price per unit to outside customers Variable costs per unit Fixed costs per unit (based on capacity) Division Y Number of units needed for production Purchase price per unit now being paid to an outside supplier 93,000 93,000 51 $ 20 $ 7 $ 110,000 95,000 35 16 4 15,000 15,000 43 $ 32 Exercise 11A-3 Part 1

no work needed, please show correct and complete answers only. thank you.

Answer 1

Case A:

Solution 1a:

Lowest Acceptable transfer Price = Selling price to outside customers = $51

Because Division X is operating at full capacity.

Solution 1b:

Highest acceptable transfer price = Purchase price from outside supplier = $43

Solution 1c:

There is "not a range" of acceptable transfer prices.

No, the managers are not likely to agree on a transfer price.