Question: can anyone help me out with this question... E21.16 (LO 4), AP Crede Inc. has two divisions. Division A makes and sells student desks. Division

 can anyone help me out with this question... E21.16 (LO 4),

can anyone help me out with this question...

E21.16 (LO 4), AP Crede Inc. has two divisions. Division A makes and sells student desks. Division B manufactures and sells reading lamps. Each desk has a reading lamp as one of its components. Division A can prchase reading lamps at a cost of $10 from an outside vendor. Division A needs 10,000 lamps for the coming year. Division B has the capacity to manufacture 50,000 lamps annually. Sales to outside customers are estimated at 40,000 lamps for the next year. Reading lamps are sold at $12 each. Variable costs are $7 per lamp and include $1 of variable sales costs that are not incurred if lamps are sold internally to Division A. The total amount of fixed costs for Division B is $80,000. Instructions Consider the following independent situations. a. What should be the minimum transfer price accepted by Division B for the 10,000 lamps and the maximum transfer price paid by Division A? Justify your answer. b. Suppose Division B could use the excess capacity to produce and sell externally 15,000 units of a new product at a unit selling price of $7. The unit variable cost for this new product is $5. What should be the minimum transfer price accepted by Division B for the 10,000 lamps and the maximum transfer price paid by Division A? Justify your answer. c. If Division A needs 15,000 lamps instead of 10,000 during the next year, what should be the minimum transfer price accepted by Division B and the maximum transfer price paid by A? Justify your answer. (CGA adapted)

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer
Step: 1 Unlock blur-text-image
Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock
Step: 3 Unlock

Students Have Also Explored These Related Accounting Questions!