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Exercise 11-13 (Algo) Transfer Pricing Situations (LO11-3) [The following Information applies to the questions displayed below) In each of the cases below, assume Division X has a product that can be sold either to outside customers or to Division Y of the same company for use in its production process. The managers of the divisions are evaluated based on their divisional profits. Division X Capacity in units Number of units being sold to outside customers Selling price per unit to outside customers Variable costa per unit Fixed costs per unit (based on capacity) Division Y Manber of units needed for production Purchase price per unit now being paid to an outside supplier 100,000 96.000 100,000 71.000 57 20 265 10 75 5 25,000 25,000 $ 52 20 Exercise 11-13 (Algo) Part 1 Required: 1. Refer to the deta in case A above. Assume in this case that $3 per unit in variable selling costs can be avoided on intracompany sales. a. What is the lowest acceptable transfer price from the perspective of the seling division? b. What is the highest acceptable transfer price from the perspective of the buying division? c. What is the range of acceptable transfer prices if any) between the two divisions? if the managers are free to negotiate and make decisions on their own, wil a transfer probably take place? Exercise 11-13 (Algo) Transfer Pricing Situations (LO11-3] [The following information applies to the questions displayed below.) In each of the cases below, assume Division X has a product that can be sold either to outside customers or to Division Y of the same company for use in its production process. The managers of the divisions are evaluated based on their divisional profits. Division X Capacity in units Number of units being sold to outside customers Selling price per unit to outside customers Variable costa per unit Fixed costs per unit (based on capacity) Division Y. Shamber of units needed for production Purchase price per unit now being paid to an outside supplier 100,000 96.000 100,000 71,000 $ 575 28 $ 26 $ 10 7 $ 5 25,000 25,000 $ 52 $ 20 Exercise 11-13 (Algo) Part 2 Required: 2. Refer to the data in case B above. In this case, there will be no savings in variable selling costs on intracompany sales. a. What is the lowest acceptable transfer price from the perspective of the selling division? b. What is the highest acceptable transfer price from the perspective of the buying division? c. What is the range of acceptable transfer prices (if any) between the two divisions? If the managers are free to negotiate and make decisions on their own, will a transfer probably take place