Question

Collyer Products Inc. has a Valve Division that manufactures and sells a standard valve as follows: Capacity in units Selling price to outside customers on the intermediate market Variable costs per unit Fixed costs per unit (based on capacity) 120,000 $ 18 $ 12 $ 9 The company has a Pump Division that could use this valve in the manufacture of one of its pumps. The Pump Division is currently purchasing 12.000 valves per year from an overseas supplier at a cost of $17 per valve. 1. Assume that the Valve Division has ample idle capacity to handle all of the Pump Division's needs. What is the acceptable range, if any, for the transfer price between the two divisions? Transfer price

Answer 1

1
Acceptable Range for Transfer Price
More than $12 but less than $17
Valve Div should atleast recover the variable cost for any supply to Pump Div and anything above $17 would not be acceptable to Pump Div.
2
As Pump Div is able to acquire the valves at $17 which is lower than $18 at which Valve Div is able to sell to outside customers.There should not be any transfer between the two Div as there would be loss at the Organisation level.
3
Acceptable Range for Transfer Price
More than $16 but less than $17
As the contribution to Valve Div is $ 6 ( SP 18 less VC 12 ) and this can be maintained as there is reduction of $2 in VC on internal transfer.The revised SP with $6 as contribution can be $10 VC add $6 Contribution i.e $ 16.
4
Selling Price			18
Less : VC				12
Contribution			6
No.of Units ( Special )		30,000
Reduction in Production of Regular	60,000
Loss in Contribution		360,000
Lost Contribution to be recovered p.u	12
VC				13	Add a comment Know the answer? Add Answer to: Collyer Products Inc. has a Valve Division that manufactures and sells a standard valve as follows:... Your Answer: Post as a guest Your Name: What's your source? Earn Coins Coins can be redeemed for fabulous gifts. Log In Sign Up Post as anonymous Post Your Answer Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free. Similar Homework Help Questions Collyer Products Inc. has a Valve Division that manufactures and sells a standard valve as follows:... Collyer Products Inc. has a Valve Division that manufactures and sells a standard valve as follows:   Capacity in units 200,000     Selling price to outside customers on the intermediate market $ 21     Variable costs per unit $ 12     Fixed costs per unit (based on capacity) $ 9   The company has a Pump Division that could use this valve in the manufacture of one of its pumps. 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