Tulip Company is made up of two divisions: A and B. Division A produces a widget...

  

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Tulip Company is made up of two divisions: A and B. Division A produces a widget that Division B uses in the production of its product. Variable cost per widget is $0.85; full cost is $1.20. Comparable widgets sell on the open market for $1.70 each. Division A can produce up to 1.60 million widgets per year but is currently operating at only 50 percent capacity. Division B expects to use 80,000 widgets in the current year. Required: 1. Determine the minimum and maximum transfer prices. 2. Calculate Tulip Company's total benefit of having the widgets transferred between these divisions, 3. If the transfer price is set at $0.85 per unit, determine how much profit Division A will make on the transfer. Determine how much Division B will save by not purchasing the widgets on the open market. 4. If the transfer price is set at $1.70 per unit, determine how much profit Division A will make on the transfer. Determine how much Division B will save by not purchasing the widgets on the open market. 5. What transfer price would you recommend to split the difference? Determine the minimum and maximum transfer prices. Minimum Transfer Price Maximum Transfer Price Tulip Company is made up of two divisions: A and B. Division A produces a widget that Division B uses in the production of its product. Variable cost per widget is $0.85; full cost is $1.20. Comparable widgets sell on the open market for $1.70 each. Division A can produce up to 1.60 million widgets per year but is currently operating at only 50 percent capacity. Division B expects to use 80,000 widgets in the current year. Required: 1. Determine the minimum and maximum transfer prices. 2. Calculate Tulip Company's total benefit of having the widgets transferred between these divisions, 3. If the transfer price is set at $0.85 per unit, determine how much profit Division A will make on the transfer. Determine how much Division B will save by not purchasing the widgets on the open market. 4. If the transfer price is set at $1.70 per unit, determine how much profit Division A will make on the transfer. Determine how much Division B will save by not purchasing the widgets on the open market. 5. What transfer price would you recommend to split the difference? Determine the minimum and maximum transfer prices. Minimum Transfer Price Maximum Transfer Price

Answer rating: 100% (QA)

1 Minimum and Maximum Transfer Prices The minimum transfer price should cover the variable cost per ... View the full answer