Question

Tulip Company is made up of two divisions: A and B. Division A produces a widget that Division Buses in the production of its product Variable cost per widget is $1.45, full cost is $2.40. Comparable widgets sell on the open market for $3.10 each. Division A can produce up to 2 80 million widgets per year but is currently operating at only 50 percent capacity. Division B expects to use 140,000 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 $1.45 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 $310 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 Mavim im Transfer Price < Prex 5 of 7 Next > to search De 9 2 ADG

Answer 1

Sowtion and maximum Determination of minimum transfer Prices. minimum tranter Price = variable cost is to be the minimum transfer Price - $1.45 maximum transfer Price - full cost is to be treated as maximum transfer Price = $2.40 @ calculation of Tulip company's total benefit of having the widgets transferred between these divisions = unit's reauired (outsido selling Price - variable cost) = 1.40,000 (3.10 - 1.45) - 1140,000x $1.65 = * $2,31,000 31.000

③ of the transfer Price $1.45 Per unit, A Division - Profit Transfer Price (- variable cast $1.45(-) $1.45 = - Nil Division B - saving's manket Price () Transfer Price - $3.106-) 1.45 = $1.65 per unit 4 of the transfer price is $3.10 Per unit Division - Profit - - Transfer Price (-) variable cost = $3.10E) 1.45 = $1.65 per unit Division- B Profit market Price & Transfer Price = $3.10 €) 3.10 = Nil

mutually beneficial Transfer Price = variable cost t (market Bricet- variable cost) = $1.45 + (3.106-) 1-45) 2 = $1.45+ 1.65 - $1.45+0.825 = $2.2ts To split the difference I would like to suggest transfer Price is $9.275