Aberzombie, Inc. has 2 divisions, Alpha and Beta. Beta produces a unit that sells for $50, with
Question:
Aberzombie, Inc. has 2 divisions, Alpha and Beta. Beta produces a unit that sells for $50, with the following costs based on its capacity of 250,000 units:
Direct Materials | $15 |
Direct Labor | $12.50 |
Variable OH | $2.50 |
Fixed OH | $7.50 |
At present Beta does not sell any units to Alpha. Beta is selling 150,000 units externally, and Alpha is purchasing 75,000 units from an outside supplier for $45 per unit.
A.) What happens to Beta's income if it meets the outside supplier’s price, and transfers the 75,000 units to Alpha?
B.) Assume that a transfer price of $50 is used between Alpha and Beta. How does this affect the profits of Alpha, Beta, and Aberzombie, Inc (compared to when Alpha purchased the units from the outside supplier)?
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