Alpha International Corporation has two divisions, beta and gamma. Beta produces an electronic component that sells for
Question:
Direct materials............................$25.00
Direct labour.................................15.00
Variable overhead...........................5.00
Fixed overhead.............................10.00
Beta is operating at 75% of normal capacity and gamma is purchasing 15,000 units of the same component from an outside supplier for $70 per unit.
Instructions
(a) Calculate the benefit, if any, to beta in selling to gamma 15,000 at the outside supplier's price.
(b) Calculate the lowest price beta would be willing to accept.
(c) If beta is operating at full capacity what would be the lowest transfer that beta division is willing to accept?
(d) Assume that a transfer price of $75 is used between beta and gamma. Calculate the effect on the profits of beta, gamma, and Alpha International Corporation.
(e) Explain why the level of capacity in the beta division affects the transfer price
Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...
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Related Book For
Managerial Accounting Tools for Business Decision Making
ISBN: 978-1118856994
4th Canadian edition
Authors: Jerry J. Weygandt, Paul D. Kimmel, Donald E. Kieso, Ibrahim M. Aly
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