Homework Answers
| 1 | ||||||||||||||||||||
| Acceptable Range for Transfer Price | ||||||||||||||||||||
| More than $12 but less than $19 | ||||||||||||||||||||
| Valve Div should atleast recover the variable cost for any supply to Pump Div and anything above 19 would not be acceptable to Pump Div. | ||||||||||||||||||||
| 2 | ||||||||||||||||||||
| As Pump Div is able to acquire the valves at $19 which is lower than $20 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 $18 but less than $19 | ||||||||||||||||||||
| As the contribution to Valve Div is $ 8 ( SP 20 less VC 12 ) and this can be maintained as there is reduction of $2 in VC on internal transfer.The revised SP with $8 as contribution can be $10 VC add $8 Contribution i.e $ 18. | ||||||||||||||||||||
| 4 | ||||||||||||||||||||
| Selling Price | 20 | |||||||||||||||||||
| Less : VC | 12 | |||||||||||||||||||
| Contribution | 8 | |||||||||||||||||||
| No.of Units ( Special ) | 25,000 | |||||||||||||||||||
| Reduction in Production of Regular | 50,000 | |||||||||||||||||||
| Loss in Contribution | 400,000 | |||||||||||||||||||
| Lost Contribution to be recovered p.u | 16 | |||||||||||||||||||
| VC | 11 | |||||||||||||||||||
| Transfer Price | 27 | |||||||||||||||||||
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