Division S produces a component that is used by Division B. Division Ss costs of manufacturing the
Question:
Division S produces a component that is used by Division B. Division S’s costs of manufacturing the component is: Direct materials $30; Direct labor $8; Variable overhead $10; Fixed overhead $12 (based on a practical volume of 250,000 components).
Division S also incurs these costs: fixed selling & administrative $1,200,000, and variable selling $4/unit.
Division S expects to sell only 200,000 components next year. The variable selling expenses are avoidable if the component is sold internally.
Division B has been buying the same component from an external supplier for $80 each. It expects to use 40,000 units of the component next year. The manager of Division B has offered to buy 40,000 units from Division S for $56 each.
The maximum/minimum transfer price should be respectively:
a. | $80/48 | c. | $48/48 |
b. | $60/50 | d. | $38/30 |
9. Refer to question 8. Suppose Divisions S and B agree on a transfer price of $56. What is the benefit to each division respectively?
a. | $320,000/$960,000 | c. | $960,000/$320,000 |
b. | $1,280,000/$0 | d. | $0/$1,280,000 |
10. Refer to question 8. If S is at full capacity, the transfer price should be:
a. | Between $30 and $80 | c. | $30 |
b. | $80 | d. | $60 |
Managerial Accounting
ISBN: 9780073526706
12th Edition
Authors: Ray H. Garrison, Eric W. Noreen, Peter C. Brewer