Production Division is currently paying $3,200 per unit to an outside supplier. $120 per unit can be saved on internal sales from reduced selling expenses.101.What is the minimum transfer price that the Engine Division should accept?a.$3,280b.$3,400c.$3,200d.$2,000Ans: a, SO: 4, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving/Decision Making, IMA: Business Economicscontrol102.What is the increase/decrease in overall company profits if this transfer takes place?Use the following information for questions 103 and 104.The Can Division of Fruit Products Inc. manufactures and sells tin cans externally for $0.30 per can. Its unit variable costs and unit fixed costs are $0.12 and $0.04, respectively. The Packaging Division wants to purchase 50,000 cans at $0.16 a can. Selling internally will save $0.01 a can.103.Assuming the Can Division has sufficient capacity, what is the minimum transfer price it should accept?104.Assuming the Can Division is already operating at full capacity, what is the minimum transfer price it should accept?8 - 22
The Dairy Division of Famous Foods, Inc. produces and sells milk to outside customers. The operation has the capacity to produce 250,000 gallons of milk a year. Last year’s operating results were as follows:Sales (200,000) gallons$500,000Variable costs312,000Contribution margin188,000Fixed costs100,000Net Income$ 88,000105.Assume the Yogurt Division wants to purchase 30,000 gallons of milk from the Dairy Division. The minimum price that will increase the Dairy Division’s profit isa.$2.50 per gallon.b.$0.94 per gallon.c.$1.56 per gallon.d.$0.44 per gallon.Ans: c, SO: 4, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics
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