XYZ Company has two divisions, X and Y . X makes product X 1 and Y makes
Fantastic news! We've Found the answer you've been seeking!
Question:
XYZ Company has two divisions, X and Y X makes product X and Y makes product Y Every unit of product Y requires one unit of product X as a component. Y purchases most of its X requirement from X although sometimes it makes purchases from outside suppliers.
Relevant details of products X and Y are tabulated as follows:
Product X
Product Y
Established selling price
$
$
Variable Cost Per Unit Mat
Transfer price
Labor
Overhead
Total Variable Cost
Fixed Costs
Annual Outside Demand
Plant Capacity
Investment in Divisions: X $ Y $
Division Y is currently achieving an ROI below target. Its manager blames this on the high transfer price of product X The manager of Division X claims that the current transfer price $ is appropriate since it is determined by the market The manager of division Y argues that the transfer price for X should be set at production cost plus a reasonable markup The manager of Division Y has made two specific proposals aimed at improving his ROI:
a Pay $ per year for new premises which should allow an additional units of Y to be sold each year at the existing price
b The management of XYZ should intervene to reduce the transfer price of the X
REQUIRED:
If Y division wants to have an ROI of what is the maximum transfer price it will accept from Division X if it pays for new premises?
Related Book For
Management And Cost Accounting
ISBN: 9781292232669
7th Edition
Authors: Alnoor Bhimani, Srikant M. Datar, Charles T. Horngren, Madhav V. Rajan
Posted Date: