Transfer Pricing from the Viewpoint of the Entire Company - Division A manufactures electronic circuit boards. The
Question:
Transfer Pricing from the Viewpoint of the Entire Company - Division A manufactures electronic circuit boards. The boards can be sold either to Division B of the same company or to outside customers. Last year, the following activity occurred in Division A:
Selling price per circuit board | $176 |
Variable cost per circuit board | 112 |
Number of circuit boards: | |
Produced during the year | 20,200 |
Sold to outside customers | 15,500 |
Sold to Division B | 4700 |
Sales to Division B were at the same price as sales to outside customers. The circuit boards purchased by Division B were used in an electronic instrument manufactured by that division (one board per instrument). Division B incurred $270 in additional variable cost per instrument and then sold the instruments for $680 each.
Prepare income statements for Division A, Division B and the company as a whole.
The transfer price refers to the price at which divisions of the same company buy and sell goods to each other. From the viewpoint of the entire company, these interdivisional transactions should be handled as inventory transfers and only revenues earned and costs incurred from and to third parties are included in the income statement.
Managerial Accounting
ISBN: 978-0697789938
13th Edition
Authors: Ray H. Garrison, Eric W. Noreen, Peter C. Brewer