121
89) Lank Products, Inc., has a Transmitter Division that manufactures and sells a number of
products, including a standard transmitter. Data concerning that transmitter appear below:
Capacity in units
69,000
Selling price to outside customers
$62
Variable cost per unit
$31
Fixed cost per unit (based on capacity)
$15
The company has a Remote Devices Division that could use this transmitter in one of its
products. The Remote Devices Division is currently purchasing 11,000 of these transmitters per
year from an overseas supplier at a cost of $53 per transmitter.
Required:
The Transmitter Division is selling all of the transmitters it can produce to outside customers.
Also assume that $6 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?
90) Manni Products, Inc., has a Pump Division that manufactures and sells a number of products,
including a standard pump. Data concerning that pump appear below:
Capacity in units
68,000
Selling price to outside customers
$68
Variable cost per unit
$38
Fixed cost per unit (based on capacity)
$23
The company has a Pool Products Division that needs 7,000 special heavy-duty pumps per year.
The Pump Division’s variable cost to manufacture and ship this special pump would be $43 per
unit. Making these special pumps would require more manufacturing resources. Therefore, the
Pump Division would have to reduce its production and sales of regular pumps to outside
customers from 68,000 units per year to 56,100 units per year.
Required:
As far as the Pump Division is concerned, what is the lowest acceptable transfer price for the
special pumps?
Selling price to outside customers
Variable cost per unit
Unit contribution margin
Reduction in outside unit sales
Total contribution margin on lost sales
124
91) Fyodor Corporation has a Parts Division that does work for other Divisions in the company
as well as for outside customers. The company’s Machine Division has asked the Parts Division
to provide it with 8,000 special parts each year. The special parts would require $19.00 per unit
in variable production costs.
The Machine Division has a bid from an outside supplier for the special parts at $27.00 per unit.
In order to have time and space to produce the special part, the Parts Division would have to cut
back production of another part-the QR4 that it presently is producing. The QR4 sells for $34.00
per unit, and requires $18.00 per unit in variable production costs. Packaging and shipping costs
of the QR4 are $2.00 per unit. Packaging and shipping costs for the new special part would be
only $0.50 per unit. The Parts Division is now producing and selling 40,000 units of the QR4
each year. Production and sales of the QR4 would drop by 5% if the new special part is produced
for the Machine Division.
Required:
a. What is the range of transfer prices within which both the Divisions’ profits would increase as
a result of agreeing to the transfer of 8,000 special parts per year from the Parts Division to the
Machine Division?
b. Is it in the best interests of Fyodor Corporation for this transfer to take place? Explain.
92) Trendell Products, Inc., has a Motor Division that manufactures and sells a number of
products, including a standard motor. Data concerning that motor appear below:
Capacity in units
65,000
Selling price to outside customers
$75
Variable cost per unit
$36
Fixed cost per unit (based on capacity)
$29
The company has a Automotive Division that could use this motor in one of its products. The
Automotive Division is currently purchasing 8,000 of these motors per year from an overseas
supplier at a cost of $66 per motor.
Required:
Assume that the Motor Division has enough idle capacity to handle all of the Automotive
Division’s needs. What is the acceptable range, if any, for the transfer price between the two
divisions?
127
93) Shular 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 Division, in one of its
products. Data concerning that valve appear below:
Capacity in units
69,000
Selling price to outside customers
$53
Variable cost per unit
$33
Fixed cost per unit (based on capacity)
$10
The company has a Pump Division that could use this valve in one of its products. The Pump
Division is currently purchasing 8,000 of these valves per year from an overseas supplier at a
cost of $47 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.
Also assume that $5 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?
129
94) Prejean Products, Inc., has a Relay Division that manufactures and sells a number of
products, including a standard relay. Data concerning that relay appear below:
Capacity in units
78,000
Selling price to outside customers
$81
Variable cost per unit
$56
Fixed cost per unit (based on capacity)
$19
The company has a Electronics Division that could use this relay in one of its products. The
Electronics Division is currently purchasing 9,000 of these relays per year from an overseas
supplier at a cost of $74 per relay.
Required:
a. Assume that the Relay Division has enough idle capacity to handle all of the Electronics
Division’s needs. What is the acceptable range, if any, for the transfer price between the two
divisions?
b. Assume that the Relay Division is selling all of the relays 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?
95) Zumsteg Products, Inc., has a Pump Division that manufactures and sells a number of
products, including a standard pump. Data concerning that pump appear below:
Capacity in units
71,000
Selling price to outside customers
$88
Variable cost per unit
$61
Fixed cost per unit (based on capacity)
$19
The company has a Pool Products Division that could use this pump in one of its products. The
Pool Products Division is currently purchasing 7,000 of these pumps per year from an overseas
supplier at a cost of $81 per pump.
Required:
Assume that the Pump Division has enough idle capacity to handle all of the Pool Products
Division’s needs. What is the acceptable range, if any, for the transfer price between the two
divisions?
132
96) Division Y has asked Division X of the same company to supply it with 5,000 units of part
L763 this year to use in one of its products. Division Y has received a bid from an outside
supplier for the parts at a price of $33.00 per unit. Division X has the capacity to produce 20,000
units of part L763 per year. Division X expects to sell 18,000 units of part L763 to outside
customers this year at a price of $34.00 per unit. To fill the order from Division Y, Division X
would have to cut back its sales to outside customers. Division X produces part L763 at a
variable cost of $25.00 per unit. The cost of packing and shipping the parts for outside customers
is $2.00 per unit. These packing and shipping costs would not have to be incurred on sales of the
parts to Division Y.
Required:
a. What is the range of transfer prices within which both the Divisions’ profits would increase as
a result of agreeing to the transfer of 5,000 parts this year from Division Y to Division X?
b. Is it in the best interests of the overall company for this transfer to take place? Explain.