47) Germano Products, Inc., has a Pump Division that manufactures and sells a number of
products, including a standard pump that could be used by another division in the company, the
Pool Products Division, in one of its products. Data concerning that pump appear below:
Capacity in units
65,000
Selling price to outside customers
$
98
Variable cost per unit
$
36
Fixed cost per unit (based on capacity)
$
44
–
The Pool Products Division is currently purchasing 10,000 of these pumps per year from an
overseas supplier at a cost of $94 per pump.
Assume that the Pump Division is selling all of the pumps it can produce to outside customers.
Does there exist a transfer price that would make both the Pump and Pool Products Division
financially better off than if the Pool Products Division were to continue buying its pumps from
the outside supplier?
A) Yes, both divisions are always better off regardless of whether the selling division has enough
idle capacity to handle all of the buying division’s needs.
B) Yes, the minimum transfer price that the selling division should be willing to accept is less
than the maximum transfer price that the buying division should be willing to accept.
C) The answer cannot be determined from the information that has been provided.
D) No, the minimum transfer price that the selling division should be willing to accept exceeds
the maximum transfer price that the buying division should be willing to accept.
48) Division A makes a part with the following characteristics:
15,000
units
$
25
$
18
$
60,000
–
Division B, another division of the same company, would like to purchase 5,000 units of the part
each period from Division A. Division B is now purchasing these parts from an outside supplier
at a price of $24 each.
Suppose that Division A has ample idle capacity to handle all of Division B’s needs without any
increase in fixed costs and without cutting into sales to outside customers. If Division A refuses
to accept the $24 price internally and Division B continues to buy from the outside supplier, the
company as a whole will be:
A) worse off by $30,000 each period.
B) worse off by $10,000 each period.
C) better off by $15,000 each period.
D) worse off by $35,000 each period.
49) Division A makes a part with the following characteristics:
15,000
units
$
25
$
18
$
60,000
–
Division B, another division of the same company, would like to purchase 5,000 units of the part
each period from Division A. Division B is now purchasing these parts from an outside supplier
at a price of $24 each.
Suppose that Division A is operating at capacity and can sell all of its output to outside
customers at its usual selling price. If Division A agrees to sell the parts to Division B at $24 per
unit, the company as a whole will be:
A) better off by $5,000 each period.
B) worse off by $15,000 each period.
C) worse off by $5,000 each period.
D) There will be no change in the profits of the company as a whole.
50) Zeilinger Products, Inc., has a Screen Division that manufactures and sells a number of
products, including a standard screen that could be used by another division in the company, the
Home Security Division, in one of its products. Data concerning that screen appear below:
Capacity in units
40,000
Selling price to outside customers
$
65
Variable cost per unit
$
28
Fixed cost per unit (based on capacity)
$
26
–
The Home Security Division is currently purchasing 8,000 of these screens per year from an
overseas supplier at a cost of $58 per screen.
What is the maximum price that the Home Security Division should be willing to pay for screens
transferred from the Screen Division?
A) $58 per unit
B) $26 per unit
C) $28 per unit
D) $54 per unit
51) Zeilinger Products, Inc., has a Screen Division that manufactures and sells a number of
products, including a standard screen that could be used by another division in the company, the
Home Security Division, in one of its products. Data concerning that screen appear below:
Capacity in units
40,000
Selling price to outside customers
$
65
Variable cost per unit
$
28
Fixed cost per unit (based on capacity)
$
26
–
The Home Security Division is currently purchasing 8,000 of these screens per year from an
overseas supplier at a cost of $58 per screen.
Assume that the Valve Division is selling all of the valves it can produce to outside customers.
From the standpoint of the Valve Division, what is the lost contribution margin if the valves are
transferred internally rather than sold to outside customers?
A) $88,000
B) $392,000
C) $1,480,000
D) $296,000
Selling price to outside customers
$
Variable cost per unit
$
Unit contribution margin
$
Reduction in outside unit sales
Total contribution margin on lost sales
$
296,000
–
52) Royal Products, Inc., has a Connector Division that manufactures and sells a number of
products, including a standard connector that could be used by another division in the company,
the Transmission Division, in one of its products. Data concerning that connector appear below:
Capacity in units
66,000
Selling price to outside customers
$
69
Variable cost per unit
$
21
Fixed cost per unit (based on capacity)
$
35
–
The Transmission Division is currently purchasing 6,000 of these connectors per year from an
overseas supplier at a cost of $65 per connector.
What is the maximum price that the Transmission Division should be willing to pay for
connectors transferred from the Connector Division?
A) $35 per unit
B) $65 per unit
C) $56 per unit
D) $21 per unit
53) Royal Products, Inc., has a Connector Division that manufactures and sells a number of
products, including a standard connector that could be used by another division in the company,
the Transmission Division, in one of its products. Data concerning that connector appear below:
Capacity in units
66,000
Selling price to outside customers
$
69
Variable cost per unit
$
21
Fixed cost per unit (based on capacity)
$
35
–
The Transmission Division is currently purchasing 6,000 of these connectors per year from an
overseas supplier at a cost of $65 per connector.
Assume that the Connector Division has enough idle capacity to handle all of the Transmission
Division’s needs. What should be the minimum acceptable transfer price for the connectors from
the standpoint of the Connector Division?
A) $21 per unit
B) $56 per unit
C) $69 per unit
D) $65 per unit
54) Royal Products, Inc., has a Connector Division that manufactures and sells a number of
products, including a standard connector that could be used by another division in the company,
the Transmission Division, in one of its products. Data concerning that connector appear below:
Capacity in units
66,000
Selling price to outside customers
$
69
Variable cost per unit
$
21
Fixed cost per unit (based on capacity)
$
35
–
The Transmission Division is currently purchasing 6,000 of these connectors per year from an
overseas supplier at a cost of $65 per connector.
Assume that the Connector Division is selling all of the connectors it can produce to outside
customers. What should be the minimum acceptable transfer price for the connectors from the
standpoint of the Connector Division?
A) $56 per unit
B) $65 per unit
C) $69 per unit
D) $21 per unit
Fregozo Products, Inc., has a Connector Division that manufactures and sells a number of
products, including a standard connector that could be used by another division in the company,
the Transmission Division, in one of its products. Data concerning that connector appear below:
Capacity in units
58,000
Selling price to outside customers
$
54
Variable cost per unit
$
20
Fixed cost per unit (based on capacity)
$
21
–
The Transmission Division is currently purchasing 8,000 of these connectors per year from an
overseas supplier at a cost of $45 per connector.
55) Assume that the Connector Division has enough idle capacity to handle all of the
Transmission Division’s needs. What should be the minimum acceptable transfer price for the
connectors from the standpoint of the Connector Division?
A) $54 per unit
B) $20 per unit
C) $41 per unit
D) $45 per unit
56) Assume that the Connector Division is selling all of the connectors it can produce to outside
customers. What should be the minimum acceptable transfer price for the connectors from the
standpoint of the Connector Division?
A) $54 per unit
B) $45 per unit
C) $41 per unit
D) $20 per unit
57) Assume that the Valve Division is selling all of the valves it can produce to outside
customers. Also assume that $10 in variable expenses can be avoided on transfers within the
company due to reduced shipping and selling costs. What should be the minimum acceptable
transfer price for the valves from the standpoint of the Valve Division?
A) $31 per unit
B) $54 per unit
C) $44 per unit
D) $45 per unit
58) Division A of Tripper Company produces a part that it sells to other companies. Sales and
cost data for the part follow:
Capacity in units
60,000
units
Selling price per unit
$
40
per unit
Variable costs per unit
$
28
per unit
Fixed costs per unit at capacity
$
9
per unit
–
Division B, another division of Tripper Company, would like to buy this part from Division A.
Division B is presently purchasing the part from an outside source at $38 per unit. If Division A
sells to Division B, $1 in variable costs can be avoided.
Assume that Division A is presently operating at capacity. According to the formula in the text,
what is the lowest acceptable transfer price from the viewpoint of the selling division?
A) $37 per unit
B) $39 per unit
C) $36 per unit
D) $38 per unit
59) Division A of Tripper Company produces a part that it sells to other companies. Sales and
cost data for the part follow:
Capacity in units
60,000
units
Selling price per unit
$
40
per unit
Variable costs per unit
$
28
per unit
Fixed costs per unit at capacity
$
9
per unit
–
Division B, another division of Tripper Company, would like to buy this part from
Division A. Division B is presently purchasing the part from an outside source at $38
per unit. If Division A sells to Division B, $1 in variable costs can be avoided.
Assume that Division A has ample idle capacity to handle all of Division B’s needs without any
increase in fixed costs and without cutting into outside sales. According to the formula in the
text, what is the lowest acceptable transfer price from the viewpoint of the selling division?
A) $40 per unit
B) $39 per unit
C) $28 per unit
D) $27 per unit
60) Oberley Products, Inc., has a Receiver Division that manufactures and sells a number of
products, including a standard receiver that could be used by another division in the company,
the Industrial Products Division, in one of its products. Data concerning that receiver appear
below:
Capacity in units
47,000
Selling price to outside customers
$
67
Variable cost per unit
$
33
Fixed cost per unit (based on capacity)
$
19
–
The Industrial Products Division is currently purchasing 5,000 of these receivers per year from
an overseas supplier at a cost of $58 per receiver.
What is the maximum price that the Industrial Products Division should be willing to pay for
receivers transferred from the Receiver Division?
A) $52 per unit
B) $19 per unit
C) $58 per unit
D) $33 per unit
61) Oberley Products, Inc., has a Receiver Division that manufactures and sells a number of
products, including a standard receiver that could be used by another division in the company,
the Industrial Products Division, in one of its products. Data concerning that receiver appear
below:
Capacity in units
47,000
Selling price to outside customers
$
67
Variable cost per unit
$
33
Fixed cost per unit (based on capacity)
$
19
–
The Industrial Products Division is currently purchasing 5,000 of these receivers per year from
an overseas supplier at a cost of $58 per receiver.
Assume that the Valve Division is selling all of the valves 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 should be the minimum acceptable transfer price for
the valves from the standpoint of the Valve Division?
A) $61 per unit
B) $46 per unit
C) $67 per unit
D) $58 per unit
Division P of the Nyers Company makes a part that can either be sold to outside customers or
transferred internally to Division Q for further processing. Annual data relating to this part are as
follows:
Annual production capacity
80,000
units
Selling price of the item to outside customers
$
35
per unit
Variable cost
$
23
per unit
Average fixed cost
$
5
per unit
–
Division Q of the Nyers Company requires 15,000 units per year and is currently paying an
outside supplier $33 per unit. Consider each part below independently.
62) If outside customers demand only 50,000 units per year, then according to the formula in the
text, what is the lowest acceptable transfer price from the viewpoint of the selling division?
A) $35 per unit
B) $33 per unit
C) $28 per unit
D) $23 per unit
63) If outside customers demand 80,000 units, then according to the formula in the text, what is
the lowest acceptable transfer price from the viewpoint of the selling division?
A) $35 per unit
B) $33 per unit
C) $28 per unit
D) $23 per unit