1014 1 the minimum and maximum transfer price for

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Unformatted text preview: um transfer price for each division is $2.30. The company is indifferent to the transfer because it earns the same income whether or not it takes place. If the transfer takes place, the price should be $2.30. 2. The minimum transfer price is $2.10, and the maximum price is still $2.30. The transfer should take place because the company would save $30,000 (150,000 × $0.20) each year. 3. The offer should be accepted because the Small Motor Division’s profits would increase by $15,000 (representing an even split of the savings from internal transfer). 329 10–15 1. Maximum price Minimum price* Difference × Number of packages Increased profit $ 3.95 2.25 $ 1.70 × 150,000 $ 255,000 *Due to idle capacity of the Paper Division, the minimum price is a variable cost of $2.25 per package. Since selling costs of $0.40 are avoidable, they are not included. Yes, the transfer should take place. 2. Penelope would definitely consider the $3.20 price because her income would increase $112,500 ([$3.95 – $3.20] × 150,000). Tom would most likely negotiate a price less than $3.75 if he has knowledge of the excess capacity. 3. The full-cost transfer price is $3.45 ($2.25 + $1.20). If the transfer takes place, the Paper Division will make an additional $180,000 (150,000 × $1.20) and the School Photography Division will save $75,000 ([$3.95 – $3.45] × 150,000). 10–16 Revenues Expenses Operating income Assets Margin Turnover ROI A $10,000 7,800 2,200 20,000 22%1 0.502* 11%3 B $ 45,000 27,0004 18,000 144,0005 40% 0.3125 12.5%6 *Indicates missing amount. 1 $2,200/$10,000 = 0.22 2 $10,000/$20,000 = 0.50 3 $2,200/$20,000 = 0.11 4 $45,000 - $18,000 = $27,000 5 $45,000 × 0.3125 = $144,000 6 0.4 × 0.3125 = 0.125 7 $200,000 - $188,000 = $12,000 8 C $200,000 188,000 12,0007 100,000 6%8 29 12.0%10 D $19,20011 18,00012 1,20013 9,600 6.25% 2.00 12.5%14 $12,000/$200,000 = 0.06 $200,000/$100,000 = 2 10 $12,000/$$100,000 = 0.12 11 $9,600 × 2 = $19,200 12 $19,200 - $1,200 = $18,000 13 $19,200 × 0.0625 = 1,200 14 $1...
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