San Jose Company operates a Manufacturing Division and an Assembly Division. Both divisions are evaluated as profit
Question:
San Jose Company operates a Manufacturing Division and an Assembly Division. Both divisions are evaluated as profit centers. Assembly buys components from Manufacturing and assembles them for sale. Manufacturing sells many components to third parties in addition to Assembly. Selected data from the two operations follow.
| Manufacturing | Assembly | |||||
| Capacity (units) | 408,000 | 208,000 | ||||
| Sales pricea | $ | 416 | $ | 1,340 | ||
| Variable costsb | $ | 200 | $ | 496 | ||
| Fixed costs | $ | 40,080,000 | $ | 24,080,000 | ||
a For Manufacturing, this is the price to third parties.
b For Assembly, this does not include the transfer price paid to Manufacturing.
Suppose Manufacturing is located in Country A with a tax rate of 70 percent and Assembly in Country B with a tax rate of 30 percent. All other facts remain the same.
Required:
a. Current production levels in Manufacturing are 208,000 units. Assembly requests an additional 48,000 units to produce a special order. What transfer price would you recommend?
b. Suppose Manufacturing is operating at full capacity. What transfer price would you recommend?
c. Suppose Manufacturing is operating at 928,000 units. What transfer price would you recommend? (Round your answer to 2 decimal places.)
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Expert Answer:
a Current production levels in Manufacturing are 208000 units Assembly requests an additional 48000 ... View the full answer
Fundamentals of Cost Accounting
ISBN: 978-1259565403
5th edition
Authors: William Lanen, Shannon Anderson, Michael Maher
