Question

Techno Inc. has two divisions: Auxiliary Components and Audio Systems. Divisional managers are encouraged to maximize...

Techno Inc. has two divisions: Auxiliary Components and Audio Systems. Divisional managers are encouraged to maximize ROI and EVA. Managers are essentially free to determine whether goods will be transferred internally and what will be the internal transfer prices. Headquarters has directed that all internal prices be expressed on a full cost-plus basis. The markup in the full cost pricing arrangement, however, is left to the discretion of the divisional managers. Recently, the two divisional managers met to discuss a pricing agreement for a subwoofer that would be sold with a personal computer system. Production of the subwoofers is at capacity. Subwoofers can be sold for $31 to outside customers. The Audio Systems Division can also buy the subwoofer from external sources for the same price; however, the manager of this division is hoping to obtain a price concession by buying internally. The full cost of manufacturing the subwoofer is $20. If the manager of the Auxiliary Components Division sells the subwoofer internally, $5 of selling and distribution costs can be avoided. The volume of business would be 250,000 units per year, which is well within the capacity of the producing division. After some discussion, the two managers agreed on a full cost-plus pricing scheme that would be reviewed annually. Any increase in the outside selling price would be added to the transfer price by simply increasing the markup by an appropriate amount. Any major changes in the factors that led to the agreement could initiate a new round of negotiation. Otherwise, the full cost-plus arrangement would continue in force for subsequent years.

1. Calculate the minimum and maximum transfer prices.

2. Assume that the transfer price agreed on between the two managers is halfway between the minimum and maximum transfer prices. Calculate this transfer price. Round your answer to two decimal places. What markup over full cost is implied by this transfer price? Round your answer to one decimal place

3. Refer to Requirement 2. Assume that in the following year, the outside price of subwoofers increases to $32. What is the new full cost-plus transfer price? Round your answer to two decimal places.

0 0
Add a comment Improve this question Transcribed image text
Answer #1

Solution; to Given that Subwoofers can be sold for $31. to outside Customer The full cost of manufacturing the Subwoofer is $3. calculation of transfer price The outside price of Subwoofers increases to $32 . Revised Markup = 32- manufacturing cost =

Add a comment
Know the answer?
Add Answer to:
Techno Inc. has two divisions: Auxiliary Components and Audio Systems. Divisional managers are encouraged to maximize...
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

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
  • Sako Company’s Audio Division produces a speaker that is used by manufacturers of various audio products....

    Sako Company’s Audio Division produces a speaker that is used by manufacturers of various audio products. Sales and cost data on the speaker follow: Selling price per unit on the intermediate market $ 44 Variable costs per unit $ 18 Fixed costs per unit (based on capacity) $ 7 Capacity in units 60,000 Sako Company has a Hi-Fi Division that could use this speaker in one of its products. The Hi-Fi Division will need 12,000 speakers per year. It has...

  • Sako Company’s Audio Division produces a speaker that is used by manufacturers of various audio products....

    Sako Company’s Audio Division produces a speaker that is used by manufacturers of various audio products. Sales and cost data on the speaker follow: Selling price per unit on the intermediate market $ 45 Variable costs per unit $ 20 Fixed costs per unit (based on capacity) $ 7 Capacity in units 59,000 Sako Company has a Hi-Fi Division that could use this speaker in one of its products. The Hi-Fi Division will need 8,000 speakers per year. It has...

  • Sako Company's Audio Division produces a speaker that is used by manufacturers of various audio products....

    Sako Company's Audio Division produces a speaker that is used by manufacturers of various audio products. Sales and cost data on the speaker follow: Selling price per unit on the intermediate market Variable costs per unit Fixed costs per unit (based on capacity Capacity in units 41 17 62,000 Sako Company has a Hi-Fi Division that could use this speaker in one of its products. The Hi-Fi Division will need 9,000 speakers per year. It has received a quote of...

  • Sako Company’s Audio Division produces a speaker that is used by manufacturers of various audio products....

    Sako Company’s Audio Division produces a speaker that is used by manufacturers of various audio products. Sales and cost data on the speaker follow: Selling price per unit on the intermediate market $ 42 Variable costs per unit $ 16 Fixed costs per unit (based on capacity) $ 7 Capacity in units 63,000 Sako Company has a Hi-Fi Division that could use this speaker in one of its products. The Hi-Fi Division will need 12,000 speakers per year. It has...

  • Sako Company's Audio Division produces a speaker that is used by manufacturers of various audio products....

    Sako Company's Audio Division produces a speaker that is used by manufacturers of various audio products. Sales and cost data on the speaker follow: 41 17 $ Selling price per unit on the intermediate market Variable costs per unit Fixed costs per unit (based on capacity) Capacity in units 62,000 Sako Company has a Hi-Fi Division that could use this speaker in one of its products. The Hi-Fi Division will need 9,000 speakers per year. It has received a quote...

  • Sako Company’s Audio Division produces a speaker that is used by manufacturers of various audio products....

    Sako Company’s Audio Division produces a speaker that is used by manufacturers of various audio products. Sales and cost data on the speaker follow: Selling price per unit on the intermediate market $ 40 Variable costs per unit $ 20 Fixed costs per unit (based on capacity) $ 6 Capacity in units 56,000 Sako Company has a Hi-Fi Division that could use this speaker in one of its products. The Hi-Fi Division will need 10,000 speakers per year. It has...

  • Exercise 11-3 (Static) Transfer Pricing Basics (LO11-3] Sako Company's Audio Division produces a speaker that is...

    Exercise 11-3 (Static) Transfer Pricing Basics (LO11-3] Sako Company's Audio Division produces a speaker that is used by manufacturers of various audio products. Sales and cost data on the speaker follow: Selling price per unit on the intermediate market Variable costs per unit Fixed costs per unit (based on capacity) Capacity in units A A A 60 42 8 25,000 Sako Company has a Hi-Fi Division that could use this speaker in one of its products. The Hi-Fi Division will...

  • Exercise 11-3 (Static) Transfer Pricing Basics [LO11-3] Sako Company’s Audio Division produces a speaker that is...

    Exercise 11-3 (Static) Transfer Pricing Basics [LO11-3] Sako Company’s Audio Division produces a speaker that is used by manufacturers of various audio products. Sales and cost data on the speaker follow: Selling price per unit on the intermediate market $ 60 Variable costs per unit $ 42 Fixed costs per unit (based on capacity) $ 8 Capacity in units 25,000 Sako Company has a Hi-Fi Division that could use this speaker in one of its products. The Hi-Fi Division will...

  • Exercise 11-3 (Static) Transfer Pricing Basics [LO11-3] Sako Company’s Audio Division produces a speaker that is...

    Exercise 11-3 (Static) Transfer Pricing Basics [LO11-3] Sako Company’s Audio Division produces a speaker that is used by manufacturers of various audio products. Sales and cost data on the speaker follow: Selling price per unit on the intermediate market $ 60 Variable costs per unit $ 42 Fixed costs per unit (based on capacity) $ 8 Capacity in units 25,000 Sako Company has a Hi-Fi Division that could use this speaker in one of its products. The Hi-Fi Division will...

  • Sako Company's Audio Division produces a speaker that is used by manufacturers of various audio products...

    Sako Company's Audio Division produces a speaker that is used by manufacturers of various audio products Sales and cost data on the speaker follow Selling price per unit on the intermediate market Variable costs per unit Fixed costs per unit (based on capacity) Capacity in units 55,000 Sako Company has a Hi-Fi Division that could use this speaker in one of its products. The Hi-Fi Division will need 9,000 speakers per year It has received a quote of $33 per...

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT