# 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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