Yuseco Company's Division 'A' produces a small tool used by other companies as a key part...

Transcribed Image Text:

Yuseco Company's Division 'A' produces a small tool used by other companies as a key part in their products. Cost and sales data relating to the small tool are given below: Selling price per unit Variable costs per unit Fixed costs per unit* P 50 P 30 P 12 *Based on A division's capacity of 40,000 tools per year. The company's Division 'B' is introducing a new product that will use a tool such as the one produced by Division A. An outside supplier has quoted the Division B a price of P 48 per tool. Division B would like to purchase the tools from Division A, if an acceptable transfer price can be worked out. REQUIRED: 1. Determine the lower limit of the transfer price assuming that: A) Division A has ample idle capacity to handle all the Division B's needs B) Division A is presently selling all the tools it can produce to outside customers 2. From the standpoint of the entire company, should the Division B purchase the tools from the Division A (operating at capacity) or from outside supplier? Why? 3) Assume that the Division B requires 10,000 tools per year and the Division A is presently selling 36,000 tools per year to outside customers: A) Determine the lower limit of the transfer price. B) What would be the overall effect on company profits if all 10,000 tools were acquired from the Division A rather than from the outside suppliers? Yuseco Company's Division 'A' produces a small tool used by other companies as a key part in their products. Cost and sales data relating to the small tool are given below: Selling price per unit Variable costs per unit Fixed costs per unit* P 50 P 30 P 12 *Based on A division's capacity of 40,000 tools per year. The company's Division 'B' is introducing a new product that will use a tool such as the one produced by Division A. An outside supplier has quoted the Division B a price of P 48 per tool. Division B would like to purchase the tools from Division A, if an acceptable transfer price can be worked out. REQUIRED: 1. Determine the lower limit of the transfer price assuming that: A) Division A has ample idle capacity to handle all the Division B's needs B) Division A is presently selling all the tools it can produce to outside customers 2. From the standpoint of the entire company, should the Division B purchase the tools from the Division A (operating at capacity) or from outside supplier? Why? 3) Assume that the Division B requires 10,000 tools per year and the Division A is presently selling 36,000 tools per year to outside customers: A) Determine the lower limit of the transfer price. B) What would be the overall effect on company profits if all 10,000 tools were acquired from the Division A rather than from the outside suppliers?

Answer rating: 100% (QA)

To determine the lower limit of the transfer price and analyze whether Division B should purchase the tools from Division A at capacity or from an outside supplier we need to calculate the relevant co... View the full answer