Question

Electronics is a manufacturer with two​ departments: Computer Chips and Cell Phones. The computer chip that is produced in the Chips Department can be sold to customers at $5.75 per chip. The costs associated with the computer chips are as​ follows:Option for Req 1 is Should or should not

The Cell Phone Department has been purchasing the chips that it needs for $3.50 per chip from CompuParts, but the manager was thinking that if the Chips Department could supply the chips for less than what CompuParts is asking, then it would arrange a transfer between departments instead of giving the business to an external company. Requirements Data Table x Requirement 1. Should the Chips Department supply the chips to the Cell Phone Department under these circumstances? Before answering this question, we must first determine the minimum transfer price. The minimum transfer price is $ S S The internal transfer take place. Variable manufacturing costs Variable selling and administrative costs Capacity Current production 3.00 1.60 600.000 units 600,000 units Requirement 2. If the Chips Department had sufficient capacity, would this make a difference? (Round your answer to the nearest cent.) The minimum transfer price, if the Chips Department had capacity, is $ Print Done This is than the maximum transfer price of $3.50 per unit. Therefore, the internal transfer take place.

Req 2 is Higher or lower and should or should not

Answer 1

A B Requirement1 The minimum transfer price is $ 5.75 per chip Because Chips department has no spare capacity available. The internal transfer should not take place because The Cell Phone Department can purchase the chips from CompuParts at $3.50per chip which is less than transfer price. Requirement2 The minimum transfer price, if the Chips department had capacity is $3.00 per chip Because of spare capacity and saving in selling and adminstrative cost. This is Lower than the maximum transfer price of $3.50 per unit. Therefore the internal transfer should take place.