97) Starcic Products, Inc., has a Connector Division that manufactures and sells a number of
products, including a standard connector. Data concerning that connector appear below:
Capacity in units
45,000
Selling price to outside customers
$86
Variable cost per unit
$57
Fixed cost per unit (based on capacity)
$15
The company has a Transmission Division that needs 6,000 special heavy-duty connectors per
year. The Connector Division’s variable cost to manufacture and ship this special connector
would be $62 per unit. Making these special connectors would require more manufacturing
resources. Therefore, the Connector Division would have to reduce its production and sales of
regular connectors to outside customers from 45,000 units per year to 38,400 units per year.
Required:
As far as the Connector Division is concerned, what is the lowest acceptable transfer price for
the special connectors?
Selling price to outside customers
Variable cost per unit
Unit contribution margin
Reduction in outside unit sales
Total contribution margin on lost sales
98) Stibbins Products, Inc., has a Receiver Division that manufactures and sells a number of
products, including a standard receiver. Data concerning that receiver appear below:
Capacity in units
45,000
Selling price to outside customers
$88
Variable cost per unit
$61
Fixed cost per unit (based on capacity)
$15
The company has a Industrial Products Division that could use this receiver in one of its
products. The Industrial Products Division is currently purchasing 6,000 of these receivers per
year from an overseas supplier at a cost of $79 per receiver.
Required:
a. Assume that the Receiver Division is selling all of the receivers it can produce to outside
customers. What is the acceptable range, if any, for the transfer price between the two divisions?
b. Assume again that the Receiver Division is selling all of the receivers it can produce to outside
customers. Also assume that $13 in variable expenses can be avoided on transfers within the
company due to reduced shipping and selling costs. What is the acceptable range, if any, for the
transfer price between the two divisions?
Selling price to outside customers
Variable cost per unit
Unit contribution margin
Reduction in outside unit sales
Total contribution margin on lost sales
99) Vandermeer Products, Inc., has a Antennae Division that manufactures and sells a number of
products, including a standard antennae. Data concerning that antennae appear below:
Capacity in units
88,000
Selling price to outside customers
$97
Variable cost per unit
$50
Fixed cost per unit (based on capacity)
$23
The company has a Aircraft Products Division that could use this antennae in one of its products.
The Aircraft Products Division is currently purchasing 11,000 of these antennaes per year from
an overseas supplier at a cost of $88 per antennae.
Required:
a. Assume that the Antennae Division is selling all of the antennaes it can produce to outside
customers. What is the acceptable range, if any, for the transfer price between the two divisions?
b. Assume again that the Antennae Division is selling all of the antennaes it can produce to
outside customers. Also assume that $1 in variable expenses can be avoided on transfers within
the company due to reduced shipping and selling costs. What is the acceptable range, if any, for
the transfer price between the two divisions?
Selling price to outside customers
Variable cost per unit
Unit contribution margin
Reduction in outside unit sales
Total contribution margin on lost sales
100) Chesley Products, Inc., has a Connector Division that manufactures and sells a number of
products, including a standard connector. Data concerning that connector appear below:
Capacity in units
40,000
Selling price to outside customers
$89
Variable cost per unit
$43
Fixed cost per unit (based on capacity)
$22
The company has a Transmission Division that could use this connector in one of its products.
The Transmission Division is currently purchasing 8,000 of these connectors per year from an
overseas supplier at a cost of $82 per connector.
Required:
a. Assume that the Connector Division has enough idle capacity to handle all of the Transmission
Division’s needs. What is the acceptable range, if any, for the transfer price between the two
divisions?
b. Assume that the Connector Division is selling all of the connectors it can produce to outside
customers. What is the acceptable range, if any, for the transfer price between the two divisions?
c. Assume again that the Connector Division is selling all of the connectors it can produce to
outside customers. Also assume that $3 in variable expenses can be avoided on transfers within
the company due to reduced shipping and selling costs. What is the acceptable range, if any, for
the transfer price between the two divisions?
Selling price to outside customers
Variable cost per unit
Unit contribution margin
Reduction in outside unit sales
Total contribution margin on lost sales
101) Liapis Products, Inc., has a Valve Division that manufactures and sells a number of
products, including a standard valve that could be used by another division, the Pump Division,
in one of its products. Data concerning that valve appear below:
Capacity in units
66,000
Selling price to outside customers
$66
Variable cost per unit
$38
Fixed cost per unit (based on capacity)
$22
The Pump Division is currently purchasing 12,000 of these valves per year from an overseas
supplier at a cost of $62 per valve.
Required:
a. Assume that the Valve Division has enough idle capacity to handle all of the Pump Division’s
needs. What is the acceptable range, if any, for the transfer price between the two divisions?
b. Assume that the Valve Division is selling all of the valves it can produce to outside customers.
What is the acceptable range, if any, for the transfer price between the two divisions?
c. Assume again that the Valve Division is selling all of the valves it can produce to outside
customers. Also assume that $7 in variable expenses can be avoided on transfers within the
company due to reduced shipping and selling costs. What is the acceptable range, if any, for the
transfer price between the two divisions?
Selling price to outside customers
Variable cost per unit
Unit contribution margin
Reduction in outside unit sales
Total contribution margin on lost sales
143
102) Ulrich Company has a Castings Division which does casting work of various types. The
company’s Machine Products Division has asked the Castings Division to provide it with 20,000
special castings each year on a continuing basis. The special casting would require $12 per unit
in variable production costs.
In order to have time and space to produce the new casting, the Castings Division would have to
cut back production of another casting – the RB4 which it presently is producing. The RB4 sells
for $40 per unit, and requires $18 per unit in variable production costs. Boxing and shipping
costs of the RB4 are $6 per unit. Boxing and shipping costs for the new special casting would be
only $1 per unit, thereby saving the company $5 per unit in cost. The company is now producing
and selling 100,000 units of the RB4 each year. Production and sales of this casting would drop
by 25 percent if the new casting is produced. Some $240,000 in fixed production costs in the
Castings Division are now being covered by the RB4 casting; 25 percent of these costs would
have to be covered by the new casting if it is produced and sold to the Machine Products
Division.
Required:
According to the formula in the text, what is the lowest acceptable transfer price from the
viewpoint of the selling division? Show all computations.
