23 - 22-28 (Cont'd.) Or the same facts can be analyzed for...

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Unformatted text preview: 22-28 (Cont'd.) Or the same facts can be analyzed for the company as a whole: Sales of intermediate product, 800 ($200 $120) Sales of final products, 200 [300 ($120 + $120)] Total contribution = = $64,000 12,000 $76,000 If the transfer price were $195, B would not accept the transfer and would not earn any contribution. As shown above, Division A and the company as a whole will earn a total contribution of $75,000 instead of $76,000. 2. a. Division A can sell 900 units at $195 to the outside market and 100 units to Division B, or 800 at $200 to the outside market and 200 units to Division B. Note that, under both alternatives, 100 units can be transferred to Division B at no opportunity cost to A. Using the general guideline, the minimum transfer price of the first 100 units [9011000] is: TP1 = $120 + 0 = $120 If Division B needs 100 additional units, the opportunity cost to A is not zero, because Division A will then have to sell only 800 units to the outside market for a contribution of 800 ($200 $120) = $64,000 instead of 900 units for a contribution of 900 ($195 $120) = $67,500. Each unit sold to B in addition to the first 100 units has an opportunity cost to A of ($67,500 $64,000) 100 = $35. Using the general guideline, the minimum transfer price of the next 100 units [801900] is: TP2 = $120 + $35 = $155 Alternatively, the computation could be: Increase in contribution from 100 more units, 100 $75 Loss in contribution on 800 units, 800 ($80 - $75) Net "marginal revenue" (Minimum) transfer price applicable to first 100 units offered by A is $120 + $0 unit $7,500 4,000 $3,500 100 units = $35 = $120 per (Minimum) transfer price applicable to next 100 units offered by A is $120 + ($3,500 100) unit (Minimum) transfer price applicable to next 800 units unit = = $155 per $195 per ...
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This note was uploaded on 02/05/2012 for the course ACCOUNTING acct 504 taught by Professor Dehmal during the Spring '10 term at DeVry Pittsburgh.

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23 - 22-28 (Cont'd.) Or the same facts can be analyzed for...

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